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DEPARTMENT PAMPHLET • NO. 31-4 


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V 

IVIL AFFAIRS INFORMATION GUIDE 

\ 

BANK ACCOUNTING 


AND OPERATIONS 
IN JAPAN 


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\ 


a - SEP 15 
Copy-1960 


(Appendices to this Guide are published in a separate 
document as W.D. Pamphlet No. 31—4A) 


A 



LIBRARY Ol CONGRESS 

F.A.C. File No. 


6 811360 

AUTHORED^ Vla.r 



R DEPARTMENT 

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UNITED STATES GOVERNMENT PRINTING OFFICE 


WASHINGTON : 1945 




















* 




WAR DEPARTMENT 
Washington 25, D.C., 2 June 1945 

War Department Pamphlet No. 31-4, Civil Affairs Information 
Guide, Bank Accounting and Operations In Japan, has been pre¬ 
pared by the Enemy Branch, Foreign Economic Administration, 
and is published for the information and guidance of all concerned. 

[AG 461 (26 May 45)] 

By order of the Secretary of War : 


Official: G. C. MARSHALL 

Chief of Staff 

J. A. ULIO 

Major General 
The Adjutant General 

Distribution : 

AAF (5) ; AGF (5) ; ASF (2) ; Special Distribution. 

Refer to FM 21-6 for explanation of distribution formula. 




S !> 


> 

> 

■» 


PREFATORY NOTE 


Civil Affairs Guides and Information Guides on Japan are de¬ 
signed to aid officers responsible for military government in that 
country. Each Guide is focused on a specific problem which may 
confront military government authorities and contains (a) perti¬ 
nent information organized in such a way as to be useful in dealing 
with the problem, and (b) an analysis of the various steps which 
might be taken in meeting the problem. 

The Guides are not basic collections of factual information as 
are the Civil Affairs Handbooks, nor are recommendations* in the 
Guides intended to take the place of plans prepared in the field. 
They are rather designed to point information and analysis toward 
the making and executing of plans by Civil Affairs Officers in the 
theater of operation. In no sense is a Guide to be taken as an order. 
Such orders will be issued in the normal manner. 


The Committee on Civil Affairs Studies consists of representa¬ 
tives of the Department of State, Department of Agriculture, Office 
of Strategic Services, Foreign Economic Administration, The Navy 
and the Civil Affairs Division, War Department Special Staff. Each 
Guide is cleared by all agencies represented on the Committee before 
it is issued. 



son is prohibited by law. 


or the 
per- 


* Civil Affairs Information Guides do not contain recommendations. 



CONTENTS 






Page 

FOREWORD- vi 

I. INTRODUCTION _ 1 

A. Development of Accounting System in Japan- 

B. Professional Accountants and Laws- 2 

C. Brief Resume of Prewar Japanese Banking Situation- 5 

1. Kinds of banks- 5 

2. Relative importance of different groups of banks- 5 

3. Government measures enacted to control banks- 7 

II. BANK ENTRIES, ACCOUNTS AND FUNCTIONAL CLASSIFICATION OF A BANK 11 

A. Dempyo System_ 11 

1. Purpose for which the dempyos are used_ 11 

2. Different methods used between the ordinary and the bank 

entry making systems_ 11 

3. Kinds of dempyos_ 14 

4. Handling of dempyos_ 15 

5. Handling of transactions which have no immediate effect on 

bank assets_ 16 

B. Names of Accounts- 16 

1. Balance sheet items_ 17 

2. Profit and loss statement--- 19 

C. Functional Classification of a Bank_ 20 

1. Management department_ 21 

2. Operating department_ 21 

III. MANAGEMENT DEPARTMENT___ 23 

A. Accounting Bureau_ 23 

1. Preparation of Entries and Day Register Book or Day 

Register Book_ 23 

2. Preparation of Ledger Book_!_:_ 24 

3. Preparation of Balance Book_ 24 

B. Research Bureau_ _ 25 

C. Examination Bureau_ 25 

« 

D. General Affairs Bureau_ 26 

1. Documents Division_ 26 

2. Supplies Division- 26 

3. Stock Division_ 27 

4. Loaning and borrowing of Securities Division_ 27 

IV. OPERATING DEPARTMENT — DEPOSIT DIVISION_ 28 

A. Fixed Deposits_ 28 

B. Deposits at Notice_._ 29 

C. Special Current Deposits_ 30 

D. Current Deposits_ 30 

1. Explanation of current deposits and checks_ 30 

2. Handling of current deposits_ 33 

jj 









































Page 

E. Miscellaneous Deposits_ _ 34 

1. Special deposits account_ 34 

2. Deposit certificate accounts_ 35 

V. OPERATING DEPARTMENT — LOAN DIVISION (Discounts)_ 36 

A. Bills Discounted_ 36 

1. Commercial bills discounted_ 36 

2. Bills secured by goods_ 42 

3. Bank acceptance bills___ 44 

VI. OPERATING DEPARTMENT— LOAN DIVISION CONTINUED 

(OVERDRAFT AND LOANS)!_ 45 

B. Overdraft_ 45 

1. Explanation of overdraft_:_ 45 

2. Types of overdrafts_ 45 

C. Loans on Deeds_ 1 _1_ 48 

1. Definition of loans on deeds__ 48 

2. Certificate of indebtedness_ 49 

D. Loans on Bills_ 50 

1. Definition of loans on bills_ 50 

2. Handling of loans on bills_ 51 

E. Call Loans_ 52 

1. Definition of call loans_ 52 

2. Kinds of call loans_ 52 

F. Statutory Limitations on Claims_ 53 

1. Limitations on commercial bills_ 53 

2. Interruption of prescribed period of time limits_ 54 

VII. OPERATING DEPARTMENT — EXCHANGE DIVISION_ 57 

A. Domestic Exchange_ 57 

1. Bank draft_ 58 

2. Current account transfer_ 59 

3. Telegraphic transfer_ 60 

4. Handling of correspondents’ accounts- 61 

5. Inter-Office Accounts_ 65 

B. Foreign Exchange- 70 

1. Selling of exchange- 71 

2. Purchase of exchange- 72 

3. Foreign exchange contract- 76 

4. Letters of credit_ 76 

i 

VIII. OPERATING DEPARTMENT — COLLECTION DIVISION- 80 

A. Bills for Collection Payable Elsewhere- 80 

1. Kinds of bills- 80 

2. Procedure of sending bills for collection- 81 

3. Methods of entry making- 82 

B. Bills for Collection Payable at Home- 83 

1. Kinds of bills payable at home- 83 

2. Handling of bills payable at home- 84 

IX. OPERATING DEPARTMENT — Other Divisions, Bureau and Clearing House 

Operations _ 85 

A. Security Division- 

B. Mortgage and Safe-Keeping Division- 86 

• • • 
III 

















































Page 


C. Receipt and Payment Bureau_ 86 

1. Receiving Division_ 86 

2. Payment Division __ 86 

3. Clearing Division_ >. _ 87 

D. Clearing House Operation_ 87 

1. Procedure of clearing house operation_ 88 

2. Preparation for clearing_ 88 

3. Procedure of clearance at the clearing house_ 90 

4. Method of handling items-received from the clearing house_ 91 

X. METHODS OF CREDIT INVESTIGATION_ 93 

A. Overdraft Loans_ 93 

B. Commercial Bills Discounted_ 94 

C. Loans on Bills _ _ _ 95 

D. Collateral Against Loans _ 95 

1. Rules governing the selection of collateral___ 95 

2. Securities_ 96 

3. Merchandise _ 98 

4. Warehouse certificates_ 99 

5. Real estate or immovable property mortgage_ 101 

XI. WARTIME CHANGES_ 103 

A. Changes in the Banking Structure_ a _ 103 

1. Bank amalgamations_ 103 

2. Wartime finance bank_ 108 

3. National Financial Control Association_ 109 

4. Designation system of financing war industries_ 112 

5. Establishment of new banks_ 115 

B. Changes in Banking Operation _ 117 

1. Emergency measures_ 117 

2. Deposit division_ 118 

3. Loan division_ 120 


3v 































FOREWORD 


This guide contains eleven chapters. Chapter I deals with a 
brief resume of background information up to 1941; Chapters II 
to X are devoted to a detailed explanation of Bank Accounting 
Procedures and Operations, and Chapter XI concerns wartime 
changes in financial organizations resulting from government ac¬ 
tion, and minor modifications in banking operations. 

The appendices contain the names of the various financial state¬ 
ments prepared by Japanese Banks; the vocabulary used in this 
guide in English, in Romanized Japanese and in Japanese; the 
names and the types of books kept by Japanese banks as well as 
the important contracts between banks and their customers are 
shown in their original forms with translations; and the names, 
location, and the number of students of the Japanese educational 
institutions where economics, commerce, and accounting are taught. 

To begin with, it must be understood that the principle of debit 
and credit applied in the Japanese Bank Accounting System is the 
same as that of the western countries. However, the Dempyo sys¬ 
tem of entry making and the Day Register Book, which is based 
upon the Dempyos, used by the Japanese banks is foreign to Occi¬ 
dentals. Nevertheless, the debit and credit in the Ledger and in 
the Balance Sheet are the same as that used in the Double Entry 
Bookkeeping System of western countries. 

In summarizing briefly the methods of financing Japanese war 
industries and the present banking structure, the former is done 
chiefly by the Wartime Finance Bank by means of advances to its 
assigned industries; by the “Big Five’' banks through loans on 
Munitions Bills to their designated industries and the Industrial 
Bank of Japan by means of Discount. The position of the Indus¬ 
trial Bank of Japan, however, has become less important since the 
Big Five banks began to take an active part in the financing of 
war industries. Besides these, there are many groups of smaller 
banks and other financial institutions that supply funds to the Big 
Five banks, the Industrial Bank, the Wartime Finance Bank and 

to the government, to be redistributed to the armament industries. 

♦ 

In regard to the present Japanese banking structure, there has 
been a drastic reduction in the number of banks under the direction 


v 


of the Minister of Finance. The task of financing war industries 
was delegated mainly to the small and powerful group comprising 
the Big Five banks, who are under the strict control of the govern¬ 
ment. They can no longer be regarded as private organizations as 
they hold more responsible positions in carrying out the govern¬ 
ment orders than many of the Special Banks. 

The so-called Designation System of financing war industries 
clearly divides the structure of Japanese banks into two categories; 
one is for the financing of armament industries and the other is for 
the absorption of savings. The Bank of Japan has now become 
the super government organ, in name as well as in fact, under 
whose direction the two distinct functions are carried out. 



I. INTRODUCTION 

A. DEVELOPMENT OF ACCOUNTING SYSTEM IN JAPAN 

The first enterprise which Japan undertook to modernize accord¬ 
ing to Western patterns after the Meiji Restoration was in the 
field of banking. When the National Bank Act was proclaimed in 
1872, it became necessary to train the personnel of the banks to 
carry on the operations along the new lines. Hence, a Banking 
Education Bureau was established in 1874 in the Banking Depart¬ 
ment of the Ministry of Finance. An Englishman was employed 
as the first teacher. In January 1877 this school was closed, but 
in the following month a new training school was opened princi¬ 
pally to teach accounting methods to bank employees. 

The Mitsubishi Company had established the first private com¬ 
mercial school in February 1878, and gave special 6-months’ train¬ 
ing courses in bookkeeping and mathematics. It was closed in 
1882. Another private institution called the Banking Training 
School was organized in Tokyo, but it was taken over by the Minis¬ 
try of Finance in 1882. Four years later, the jurisdiction over 
this school was shifted to the Ministry of Education where courses 
on accounting methods for banks as well as for the government 
were taught. From 1886 to the time of its discontinuance in 1898, 
the original Banking Training School underwent several changes 
in names and locations. 

Among the first Japanese cities where Western commercial edu¬ 
cation was started were Kobe, Osaka, and Tokyo. Yokohama, Nii¬ 
gata, and Nagoya followed and in 1886, schools were established in 
Kyoto, Saga, and Nagasaki. By that time a system of government 
subsidizing of commercial education was introduced stimulating 
a considerable increase in the number of new schools in other cities; 
such as Kagoshima, Kumamoto, Kurume, Yokkaichi, Sendai, To¬ 
yama, Takaoka, Okayama, Shizuoka, Kochi, and Hakodate. 

Japan today has a well assimilated Western system of accounting, 
theoretically and practically adapted to her own peculiar needs 
and customs. Unquestionably, it is firmly established as one of 
the highly developed sciences in Japan. 

In a book called “The Philosophy of Accounts” written by Charles 
Ezra Sprague, the author states that— 

“The balance sheet may be considered as the groundwork of 
all accountancy, the origin and the terminus of every account.” 


1 


To this statement, one of the outstanding accounting theorists in 
Japan named Norisuke Ueno expressed the opposite viewpoint, 
stating that— 

“The balance sheet may be considered as the terminus, but not 
the origin of every account. The balance sheet is the assembly 

of some of the balances of ledger accounts and the bookkeeping 
of each transaction to produce the balance of each ledger ac¬ 
count must be done first.” 

As to the division between bookkeeping and accounting, most of 
the accounting theorists in Japan seem to be of the opinion that 
bookkeeping deals primarily with the devising of proper accounts, 
forms of books and scientific methods of recording each transac¬ 
tion which would show the true picture of the financial status. 
Accounting (KAIKEI GAKU or KEIRI GAKU), on the other 
hand, deals primarily with the study of properties and their fullest 
utilization in business which naturally means the careful study and 
analysis of all asset and liability accounts as well as the profit and 
loss accounts. This argument is further emphasized, according 
to Ueno, by the theory that although an enterprise is a unit of 
activity which supplies human needs, the phenomenon today is 
that enterprise is conditioned not by human needs, but by the 
profit motive of the entrepreneur. To realize profit in a given 
enterprise, the capital has to be utilized most profitably. The most 
efficient utilization of ^apital would, in turn, require a careful study 
of all assets, liabilities and profit and loss accounts. The study and 
analysis of these accounts for the purpose of realizing maximum 
profit is a most important independent science and should be sepa¬ 
rated from bookkeeping. 

B. PROFESSIONAL ACCOUNTANTS AND LAWS 

The first professional accounting organization in Japan was the 
Morita Accounting Inquiry Bureau. It was established by an ex¬ 
professor of accounting of the Osaka Business College in 1907. 
In May 1916, another accounting office was opened in Kobe by a 
professor of the Kobe Business College. By 1920, there were nine 
accountants in Tokyo City alone. In 1921, the Japan Society of 
Public Accountants (NIPPON KAIKEISHI KAI) was organized 
in Tokyo. Since the last World War and the accelerated develop¬ 
ment in Japanese commerce and industry that followed, there has 
been a tremendous expansion in this profession. In December 
1942, there were 14,970 registered accountants with about 14,500 
offices in Japan. In large metropolitan cities, such as Tokyo and 
Osaka, there were 5,347 and 2,419 accountants respectively. 

Due to the occupational competition among the accountants, 


2 


their prevailing complaint is that the scholastic standard for ac¬ 
countancy is too low. Ihachi Otsuki, in his book on Bank Auditing, 
states that the Accountants Law of 1927 is a law merely defining the 
qualification of accountants without providing for the economic 
protection of accountants. He believes measures should be adopted 
protecting the more highly qualified experts from their less experi¬ 
enced competitors. 

An Article entitled “The Accountancy Profession in Japan” by 
Yoshio Watanabe in the Accounting Review of December, 1939, 
published by the American Accounting Association reveals that the 
Japan Society of Public Accountants (NIPPON KAIKEISHI KAI) 
mentioned in a previous paragraph has changed its name to the 
Japan Society of Accountants (NIPPON KEIRISHI KAI) 1 soon 
after the Accountants Law of 1927 was passed. The Accountants’ 
Societies existing in Japan as of the end of 1939 are listed below: 

a. Japan Society of Accountants in Tokyo (NIPPON KEIRISHI 

KAI). 

b. The Tokyo Society of Accountants in Tokyo (TOKYO KEI¬ 

RISHI KAI). 

c. The Whole-Japan Society of Accountants in Tokyo (ZEN- 

NIPPON KEIRISHI KAI). 

d. The Osaka Society of Accountants in Osaka (OSAKA-FU 

KEIRISHI KAI). 

e. The Aichi Prefecture Society of Accountants in Nagoya 

(AICHI-KEN KEIRISHI KAI). 

/. The Hyogo Prefecture Society of Accountants in Kobe 

(HYOGO-KEN KEIRISHI KAI), 

g. The Kyoto Society of Accountants in Kyoto (KYOTO-FU 

KEIRISHI KAI). 

In. The Japan Society of Accountants Specialized in Auditing in 

Osaka (NIPPON KENSA KEIRISHI KAI). 

i. The Saitama Prefecture Society of Accountants in Urawa 

(SAITAMA-KEN KEIRISHI KAI). 

j. The Miyagi Prefecture Society of Accountants in Sendai 

(MIYAGI-KEN KEIRISHI KAI). 

k. The Whole-Kyushu Society of Accountants in Fukuoka (ZEN- 

KYUSHU KEIRISHI KYOKAI). 

l. The West Japan Society of Accountants in Osaka (NISHI 

NIPPON KEIRISHI KAI). 

m. The Shizuoka Prefecture Society of Accountants in Shizuoka 

(SHIZUOKA-KEN KEIRISHI KAI). 

Among the above named, the first seven societies are incorpo- 

1 KEIRISHI is strictly limited to persons who have duly registered under the Accountants Law. 
A KEIRISHI may he translated as a Chartered Accountant. 


3 



rated under the civil law and placed under the supervision of the 
Minister of Commerce and Industry. The last six are unincor¬ 
porated. Besides the above named, there are the Imperial Ac¬ 
countants Society (TEIKOKU KEIRISHI KYOKAI) and the 
Japan Society of Cost Accountants. Although no accurate informa¬ 
tion on the former is available, it may be similar to the Japan 
Society of Accountants (NIPPON KEIRISHI KAI) which may 
have changed its name. The latter, i.e., the Japan Society of Cost 
Accountants, has its headquarters in Tokyo and has seven branches 
throughout the country and Korea; namely, Tokai branch, Osaka 
branch, Kyushu branch, Kita-Nihon (Northern Japan) branch, 
Tokanto branch, Hokuriku branch, and Korea branch. It handles 
the official publication known as Genka Keisan (Cost Accounting), 
published by the Genyu Kai (Friends of Cost Accountants). This 
magazine deals chiefly with the dissemination of cost accounting 
information and discussions on its various problems. 

As for government regulation of accounting, the first auditing 
law passed the Diet in 1914. Several amendments followed and 
finally a new government bill was approved by the Diet and became 
Accountant Law #31 on 31 March 1927. 

The law provides for the scholastic standards and other require¬ 
ments concerning accountants. Japanese citizenship is necessary, 
but a foreigner may be approved for practice by the Minister of 
Commerce and Industry. Scholastic standards involve the passing 
of the examination or the successful completion of accounting study 
and related subjects in the various levels of Japanese educational 
institutions such as the Imperial Universities, universities recog¬ 
nized under the university ordinance, colleges recognized under the 
college ordinance and other universities and colleges which are 
considered as being on a similar level as those mentioned above. 
Other persons eligible for admission when the law passed were: 

a. Those who were engaged in auditing, investigation, valuation, 
certification, calculation, adjustment and planning relating to ac¬ 
counting for one year or more at the time when the law became 
effective. 

b. Those who were graduated from the economic departments 
of the Imperial Universities, or other accredited universities or 
colleges and who were engaged in occupations mentioned in the 
above paragraph for three years and who applied for accountancy 
within five years after the law became effective. 

The minimum requirement qualifying a person to take the exami¬ 
nation is a completed high school education in Japan or the same 
from a foreign school. A person without this requisite education 
may still qualify if his knowledge of Japanese, Chinese, History, 


4 


Geography, Mathematics, Physics, Chemistry and foreign lan¬ 
guages (English, French or German) are equal to or higher than 
those of the high school graduates. The examination Js written 
and oral on accounting, bookkeeping, business mathematics, com¬ 
merce, economics and civil and commercial laws. Also, an addi¬ 
tional subject is chosen from one of the following topics: Economic 
Policy (Commercial and Industrial Policies), Money and Banking, 
Commodities, Commercial and Industrial Administration, Finance, 
Bankruptcy Laws, and Criminal Laws. All accountants are re¬ 
quired to register with the government and pay a fee of 20 yen. 

C. BRIEF RESUME OF PREWAR JAPANESE BANKING SITUATION 

1. Kinds of banks 

The Japanese banks in prewar times were divided into three 
main groups; Special Banks, Ordinary Banks, and Savings Banks. 
The special banks included the Bank of Japan, the Yokohama Specie 
Bank, the Industrial Bank of Japan, the Hypothec Bank of Japan, 
the Bank of Chosen, the Industrial Bank of Chosen, The Bank of 
Taiwan, and the Hokkaido Colonial Bank. They were semiofficial 
in character, organized under a special charter and functioned for 
special purposes. The ordinary banks were private banks, per¬ 
forming commercial as well as investment bank functions. They 
operated under the banking registration, general commercial and 
financial provisions of other laws and ordinances. The ordinary 
banks were subdivided into large city banks, which were generally 
called the ordinary banks, and local banks, which were usually 
smaller in size than the former, and were known as the provincial 
banks. The ordinary banks included the so-called seven largest 
banks of prewar times, controlled by the ZAIBATSU and closely 
tied to their powerful business interests. The local banks, on the 
other hand, had their business offices within one or a few prefec¬ 
tures engaged chiefly in the financing of local business transac¬ 
tions. The savings banks were also private concerns, organized 
under the savings bank law, operating for the main purpose of 
absorbing the smaller sums of the people’s savings. They had the 
special privileges of receiving deposits in amounts of less than 
10 yen at one time at compound interest, and were allowed to han¬ 
dle the two distinct savings accounts known as the Deferred Savings 
(SUEOKI CHOCHIKU) and the Fixed Savings (TEIKI TSUMI- 
TATE). v 

2. Relative importance of different groups of banks 

The important changes which took place in the Japanese bank¬ 
ing system during the late ’thirties involved the drastic reduction of 


5 


the number of banks and alteration in the characteristics of banks. 
At the end of 1937, there were 13 special banks, 377 ordinary banks, 
and 72 sayings banks, totaling 462 with the total of 4,240 branches. 
This was reduced to 8 special banks, 88 ordinary banks and 29 
savings banks in April 1944. The reduction in number itself indi¬ 
cates the concentration of banking functions into the hands of a 
few powerful groups. This situation, together with the changes 
in the characteristics of Japanese banks, will be dealt with in detail 
in chapter XI. As to the relative importance of the previously 
mentioned four groups of banks, the following table is presented 
to indicate their importance in Japanese economic life of prewar 
times: 

BANK DEPOSITS 
(In million yen) 

End of Dec. 1941 


Kinds of deposits 

Special 

banks 1 

Ordinary 

Jjanks 

Local 

banks 

Savings 

banks 

Total 

Public funds 

62 

255 

363 

266 

1,090 

818 




62 

6,927 

9,626 

3,499 

20,785 

1,277 

3,835 

1,691 

Current account 

Special current account 
Deposits at notice 

Fixed deposits 

Others 

Ordinary and deferred 

saving's 

5,019 

6,385 

2,808 

14,851 

333 

5 

1,653 

2,878 

425 

4,823 

126 

21 

3,830 

1,691 

Fixed savings _ _ ... 







2,854 

29,401 

9,905 

5,542 

47,702 


1 Bank of Japan figures are not included. 


BANK LOANS 
(In million yen) 

End of Dec. 1941 


Kinds of loans 

Special 

banks 1 

Ordinary 

banks 

Local 

banks 

Savings 

banks 

Total 

Loans on bills 

175 

2,296 

86 

2,926 

11,157 

641 

1,742 

1,603 

2,532 

470 

534 

484 


13,864 

3,407 

2,362 

5,013 

360 

788 

Loan on deeds 


Overdrafts 


Discounts 


Other loan 

360 

Call loan 

139 

526 

123 



5,622 

15,669 

4,143 

360 

25,794 


1 Bank of Japan figures are not included. 


The above tables indicate the predominant position held by the 
ordinary banks. At the end of 1941, the ordinary banks held 61 


6 






























































percent of the total deposits and 60 percent of the total loans. The 
local banks, on the other hand, held 20 percent of the total deposits 
and 16 percent of the total loans. The ordinary and the local banks 
held, in the same period, 82 percent of the total deposits and 76 
percent of the total loans. Among the ordinary banks there were 
in 1941 the seven so-called “Big” banks; namely, the First, Mitsui, 
Mitsubishi, Sumitomo, Yasuda, Sanwa, and the One Hundred 
Banks. Each of these banks had total assets in excess of one and 
one-half billion yen in the middle of 1941, with 58 percent of the 
deposits, 66 percent of the loans and 47 percent of the security 
holdings of all ordinary banks. Most of the powerful Japanese 
banks are concentrated in the six largest commercial districts; 
namely, Tokyo, Osaka, Kobe, Yokohama, Kyoto, and Nagoya, and 
have numerous branches throughout the country, as well as in 
Korea, Formosa, Manchuria, and Occupied China. 

3. Government measures enacted to control banks 

Since 1937, the Japanese Government took various measures to 
exercise stricter control over the banks in order to provide ade¬ 
quate funds for the munitions and armament industries and to 
absorb government bond issues. On 10 September 1937 the Tem¬ 
porary Funds Adjustment Law (RINJI SHIKIN CHOSEI HO) 
was promulgated by law #86 and there have been several amend¬ 
ments since then; by the laws of #68 and #86 in 1939, by #70 
in 1940 and by #18 and #39 in 1941. On 25 September 1937 the 
Enforcement Order of the Temporary Funds Adjustment Law 
(RINJI SHIKIN CHOSEI HO SHIKO REI) was made public 
by Imperial Order #527. It also underwent several amendments; 
one in August 1938 by Imperial Order #590 and the other in April 
1939 by Imperial Order #224. 

The purpose of the law is stated in Article 1, i.e., to make proper 
adjustment in the utilization of funds in order to meet the needs 
for materials and capital funds required by the “China Incident.” 
The main aims of the law and the enforcement order were to pre¬ 
vent the flow of capital funds into non-strategic industries and to 
provide means for the raising of funds for strategic industries. 
By this law the government controls the activities of financial or¬ 
ganizations and acceptance companies. In the former is included 
banks, trust companies, insurance companies, the Central Bank 
for Industrial Cooperatives (SANGYO KUMIAI CHUO KINKO), 
the Central Bank for Commercial and Industrial Cooperatives 
(SHOKO KUMIAI CHUO KINKO) and the Federation of Credit 
Cooperatives in Hokkaido (SHINYO KUMIAI RENGO KAI). 


7 


The latter includes those which are not financial organizations, but 
engaged in the acceptance and flotation of securities. 

Article T of the Enforcement Order stipulates that any financial 
organization or acceptance company which proposes to make a 
loan for capital funds to, or handle the security flotation for busi¬ 
ness concerns amounting to 50,000. yen or more must first obtain 
permission from the Minister of Finance, regardless of whether 
the loan to a person or firm is a single item or several. This limi¬ 
tation is reduced to 30,000. yen for the proposed loan to those who 
are engaged in toilet articles manufacturing, moving picture indus¬ 
tries, hotel and theatrical businesses, retail and wholesale busi¬ 
nesses and social entertainments, etc. Furthermore, the Enforce¬ 
ment Order states that the establishment of a new business whose 
proposed capital is more than 200,000. yen requires permission 
from the Minister of Finance. These limitations are naturally not 
applied to those concerns which are engaged in defense industries 
or those organized under other laws. 

On the other hand, the above law and the enforcement order 
provide additional means to finance war industries; Article 6 of 
the law provides that the Industrial Bank of Japan can issue deben¬ 
tures up to 2 billion yen 1 and the government is to guarantee the 
payment of interest and principal of the debentures. In Articles 
13 and 14, the law permits the Industrial Bank of Japan to issue 
Savings Bonds (CHOCHIKU SAIKEN) up to the amount of re¬ 
ceipt from the sale which reaches one billion yen at a par value of 
20. yen or less in a bearer form (MUKIMEI SHIKI). Furthermore 
this bank is also permitted to issue the Patriotic Bonds (HOKOKU 
SAIKEN) up to the amount of receipt from the sale which reaches 
500. million yen at the par value of 10. yen or less in a bearer form. 
Article 9 of the law stipulates that a business concern which is 
engaged in a defense industry can issue bonds up to the amount 
equal to twice the paid up capital. 

The administration of the law was delegated to the Bank of Japan 
through whom the Minister of Finance issues permits and the 
bank officials who perform the duty are regarded as public officials. 
The law also provides for the creation of the Temporary Funds 
Investigation Committee (RINJI SHIKIN SHOSA IINKAI) and 
empowers the government to request all business concerns for 
reports dealing with funds, securities, foreign transactions and 
their plans for the utilization of funds and also gives the right 
to inspect their books. Penalties for the violation of the law are 
also provided for in the law. 

1 The amount of debentures to be issued for the purpose of converting the old bonds is to be 
excluded from this limitation. 

8 



Other government measures affecting banking operations were 
the General National Mobilization Law of 1938, the Decree on 
Division of Profit and the Utilization of Funds of Companies (KA1- 
SHA R1EK1 HAITO OYOB1 SH1KIN YUZU RE1) of 21 March 
1939. In May 1939 the capital of the Industrial Bank of Japan 
was raised from 50 million yen to 200 million yen. At the same 
time a new War Finance Department (SENJI SHIKIN YUZU BU) 
was established in the Industrial Bank. On 16 October 1940 a 
sweeping ordinance was issued based on Article XI of the National 
Mobilization Law. It is known as the Decree on the Application 
of Funds of Banks, etc. (GINKO NADO SHIKIN UNYO REI) 
and it became effective in Japan proper on 20 October 1940 and 
in Korea, Formosa, Karafuto and the South Seas Islands on 5 
November 1940. The Enforcement Rules (SHIKO KISOKU) of 
this Decree was also made public on 22 November 1940. 1 This 
Decree was directed to three different groups: the financial organi¬ 
zations, acceptance companies, and bill brokers. The financial group 
consisted of banks, trust companies, insurance companies, the Cen¬ 
tral Bank for Industrial Cooperatives (SANGYO KUMIAI CHUO 
KINKO), 2 the Central Bank for Commercial and Industrial Co¬ 
operatives (SHOKO KUMIAI CHUO KINKO), the Federation 
of Credit Cooperatives in Hokkaido and Karafuto, the Federation 
of Credit Cooperative Associations in Korea (CHOSEN KIYU KU¬ 
MIAI RENGO KAI), the Oriental Development Company (TOYO 
TAKUSHOKU KABUSHIKI KAISHA), the Formosa Develop¬ 
ment Company (TAIWAN TAKUSHOKU KABUSHIKI KAI¬ 
SHA), and the South Seas Development Company (NANYO 
TAKUSHOKU KABUSHIKI KAISHA). The acceptance com¬ 
panies operate under the Securities Acceptance Law (YUKASHO- 
KEN HIKIUKE GYO HO), and the bill brokers act as middlemen 
in call loans and bill transactions. 

The Decree on the Application of Funds placed the above-named 
organizations under complete control of the government. Under 
this Decree banks were required to submit their plans for the com¬ 
ing fiscal half year, an estimate of expected deposits and the plans 
for the investment of funds and the making of loans. The amount 
of loans to be made on discounts, on bills, deeds and overdrafts 
were limited. The government was empowered to order banks to 
undertake loans on certain industries and to subscribe or to pur¬ 
chase government bonds. Article 8 of the order elaborates the 
rules for compensation by the government for losses incurred in 

1 The Decree and the Enforcement Rules are slightly amended subsequently, the date of which 
is not known. The analysis of the decree contained in this guide is based upon the latest informa¬ 
tion available on the subject and it differs slightly from the original provisions. 

2 The Japanese KINKO is sometimes translated as Chest, Depository, or Bank. In this guide it 
is translated as Bank. 


9 



the loans made under the government order. Article 9 explains 
further that compensation is to be made with government bonds. 
Thus the autonomous character of the private banking system has 
completely disappeared. 


II. BANK ENTRIES, ACCOUNTS AND FUNCTIONAL 
CLASSIFICATION OF A BANK 


A. DEMPYO SYSTEM 

1. Purpose for which the dempyos are used 

The dempyo, which can be translated as the advice slip, is a slip 
of paper containing concise and pertinent information about a 
given transaction. Since a business transaction usually affects 
more than one department in a bank, it would undoubtedly be 
necessary and convenient to have a method of conveying the nec¬ 
essary information concerning the transaction between the depart¬ 
ments affected. Verbal communications would entail various prob¬ 
lems; such as involving risks of misinformation and incomplete 
data, or difficulty of producing proof when such proof is requested 
or required. The use of the dempyo in Japanese Banks is meant 
to eliminate these risks as well as to promote efficiency and accu¬ 
racy in recording the many complicated business transactions. 
Before entering into the discussion of the dempyo, it may be ad¬ 
visable to present and illustrate the different methods used in the 
entry making of business transactions between the ordinary book¬ 
keeping system and the bank bookkeeping system in Japan. The 
ordinary bookkeeping system is the method used by business or¬ 
ganizations in general. 

2. Different methods used between the ordinary and the bank entry 
making systems 

The ordinary entry making system used in Japan differs in no 
way from the Double Entry system used in this country. The 
bank entry making, however, is a system based upon the assump¬ 
tion that all business transactions involve the receipt and the pay¬ 
ment of cash regardless of whether they actually do or not. Thus 
the bank entry making system is sometimes called the Cash Entry 
System (GENKIN SHIWAKE HO) or the Dempyo Entry System 
(DEMPYO SHIWAKE HO). Under this system, however, no 
cash account is shown on the dempyo, even though an entry is 
made on an actual cash transaction. Instead, a Cash Receipt Dem¬ 
pyo or a Cash Payment Dempyo is prepared. Assuming that Bank 
A receives a deposit of 5,000. yen into the current account from 
Mitsui & Co., the entry making in this transaction is as follows: 


11 




a. Ordinary entry making system: 


Debit Credit 

Cash_„_5,000. yen Current Account; 

Mitsui & Co. __5,000. yen 


b. Bank entry making system: 

CASH RECEIPT DEMPYO 


Date 

Account and Particulars Amount 

Current Account: 

Mitsui & Co._5,000. yen 


As the above example indicates, the Cash Receipt Dempyo rep¬ 
resents the Debit Side while the name of the account shown on the 
dempyo, the current account, is really a Credit Account in the or¬ 
dinary entry making system. The Cash Payment Dempyo which 
represents the credit side is prepared by banks when a transaction 
involves actual cash payment. The underlying principle on which 
the payment dempyo is based is similar to that of the cash receipt 
dempyo. There are, however, many transactions which do not 
involve actual cash movement or only partial receipt or payment 
of cash. Let us assume that Bank A makes a 5,0OO.-yen loan on a 
bill to the Mitsui & Co. and deposits the amount in the latter’s 
current account. The entry making in this transaction is as fol¬ 
lows : 

a. Ordinary entry making system : 


Debit Credit 

Loan on Bill; Current Account; 

Mitsui & Co-5,000. yen Mitsui & Co_5,000. yen 


b. Bank entry making system : 

TRANSFER DEMPYO 


Date 

Debit Credit 

Account and Particulars Amount Account and Particulars Amount 
Current Account; Loan on Bill; 

Mitsui & Co-5,000. yen Mitsui & Co._5,000. yen 


As is shown in the above example, the entry making in the two 
systems is exactly in reverse. This is because Bank A regards the 
transaction as though there has been a cash receipt and a cash pay¬ 
ment; that is, it has received 5,000. yen from Mitsui & Co. for 
deposit in the current account and has paid the same amount to the 
company for a loan. Under this assumption, if the bank is to pre¬ 
pare the Cash Receipt and Payment Dempyos, the Current Account 
will be on the Cash Receipt Dempyo which represents the Debit 


12 






Side, and the Loan on Bill account will be on the Cash Payment 
Dempyo which represents the Credit Side . 

As to the method of entry making of a transaction which in¬ 
volves part cash payment and part transfer, the principle in¬ 
volved in the preparation of the dempyo is similar to the above. 
Let us assume that Bank A made a loan on a bill to Mitsui & Co. 
for 5,000. yen, 1,000. yen of which is paid in cash and the rest de¬ 
posited in its current account. Bank A prepares the following 
dempyos : 

TRANSFER DEMPYO 

Bate 

Debit Credit 

Account and Particulars Amount Account and Particulars Amount 
Current Account; Loan on Bill; 

Mitsui & Co-__4,000. Mitsui & Co_5,000. 

Balance Cash 

Paid_1,000. 

4,000. 4,000. 

PAYMENT DEMPYO 

Date 

Account and Particulars Amount 

Loan on Bill: 

Mitsui & Co., part payment_1,000. 

Under the ordinary entry making system, the entries for the 

above transaction are as follows: 

Debit Credit 

Loan on Bill; Current Account; 

Mitsui & Co._5,000. Mitsui & Co_4,000. 

Cash _1,000. 


5,000. 5,000. 

The Entries and Day Register Book, which is explained in detail 
on page 23, is prepared on the same theory as that of the bank 
entry making system. Accordingly, this book is, in reality, similar 
to that of the Cash Receipt and Cash Payment Book; the debit side 
shows the actual cash receipts as well as the transfer receipts and 
vice versa. This method of classifying accounts into debit and 
credit, however, is not in harmony with the principle of debit and 
credit under the double entry bookkeeping method. Therefore, 
when it comes to transferring the amount of each account from 
the Entries and Day Register Book to the respective account in 
the Ledger (see page 24), which is also explained in detail later, 




13 















the debit and credit are completely reversed, excepting for the cash 
account in the Ledger. 

3. Kinds of dempyos 

The three kinds of dempyos, the Receipt Dempyo, Payment 
Dempyo, and Transfer Dempyo, are explained as follows: 

a. Receipt Dempyo. The Receipt Dempyo (NYUKIN or SHU- 
NO DEMPYO) 1 is prepared by each department or division when¬ 
ever a transaction involves cash receipt. For example, the Receipt 
Dempyo which represents the repayment of a loan, is prepared by 
the Loan Division while the Dempyo representing the collection of 
a bill for a customer is prepared by the Collection Division. It 
contains the date of the receipt, the name of the credit account for 
which the money is received, the name of the person from whom 
the money is received and the amount of money received. The 
characters and the lines appearing on the dempyo are usually 
printed in Red Ink in order to distinguish this dempyo easily from 
others. The Real, therefore, represents the Debit side of the Entries 
and Day Register book and the Credit side of the Ledger book. 

b. Payment dempyo. The Payment Dempyo (SHIHARAI 
DEMPYO) 2 is prepared to record entries of a transaction which 
involves cash payment. It contains the date, name of the debit 
account for which the money is paid, name of the person to whom 
the money is paid and the amount of money paid. The characters 
and lines appearing on this dempyo are usually printed in Indigo 
to signify the cash payment and to distinguish this dempyo easily 
from others. The Indigo, therefore, represents the Credit Side of 
the Entries and Day Register Book and the Debit Side of the 
Ledger Book. 

Substitution of Receipts in place of Payment Dempyos—for the 
purpose of simplifying clerical work and to minimize bank over¬ 
head expenses, cancelled checks, deposit withdrawal slips, can¬ 
celled bank drafts, etc.—are used in place of cash payment dem¬ 
pyos. Unlike American banks, the Japanese banks do not return 
cancelled checks to their customers. These cancelled checks are 
handled in exactly the same manner as the cash payment dempyos 
and are kept in the bank with other dempyos as bank records. 

c. Transfer dempyo. The Transfer Dempyo (FURIKAE DEM¬ 
PYO) 3 is used for the entry making of a transaction which does 
not involve cash or a transaction which involves a partial cash 
receipt or a partial cash payment. In the latter case, however, a 
receipt dempyo or a payment dempyo is made together with the 
transfer dempyo to complete the entry making for the transac- 

1 See item 1, appendix 3. 

2 See item 2, appendix 3. 

3 See item 3, appendix 3. 


14 



tion. There are two types of transfer dempyos in use: one is 
where the debit and the credit entries are shown on one slip while 
the other shows the debit and the credit entries on separate slips. 
In either case, the debit side of the transfer dempyo has space for 
“Balance Cash Received’’ and the credit side of the dempyo has 
space for “Balance Cash Paid” to show the cash portion of the 
transaction when such indication is necessary. In some cases, 
however, the location of the space for balance cash received and 
paid are reversed and the majority of Japanese banks use two 
separate slips instead of one. 

As in the case of the Receipt Dempyo and the Payment Dempyo, 
the name of the account shown on the debit side of the Transfer 
Dempyo is in reality the credit account under the double entry 
bookkeeping system and vice versa. The characters and the lines 
shown on the debit side of the Transfer Dempyo are printed in 
Brown J while on the credit side, they are printed in Green. The 
Broivn, therefore, represents the debit side of the Entries and Day 
Register Book while the Green represents the credit side of the 
same. On the Ledger, however the Brown represents the credit 
side and the Green represents the debit side. 

4. Handling of dempyos 

Each dempyo originates from the department in which the par¬ 
ticular transaction takes place and all cash receipts and payment 
dempyos will naturally have to go through the Receipt and Pay¬ 
ment Bureau. When the Loan Division makes a loan and depos¬ 
its the proceeds into the customer’s current account, it will make 
the transfer dempyo, debiting the current account and crediting 
the loan account. After recording all the particulars in the aux¬ 
iliary books in the Loan Division, the current account dempyo is 
sent to the deposit division to record the deposit after it has been 
examined for accuracy by the manager. The Deposit Division 
then enters the amount on the credit of the customer’s current 
account. 

At the end of the business day, all dempyos are sent to the Ac¬ 
counting Bureau where they are classified according to debit and 
credit. The color scheme of the different kinds of dempyos, as 
stated in the previous paragraphs, simplifies this classification 
process. The Indigo of the cash payment dempyos and the Green 
of the credit transfer dempyos belong to the credit side and the 
Red of the cash receipt and the Brown of the debit transfer dem¬ 
pyos belong to the debit side. 

The debit and the credit dempyos are again classified according 
to the names of the accounts appearing on them. Summary Dem - 


1 Printed in Tea or pink Peony colors, but for the sake of convenience it is translated as Brown. 

15 



pyo sheets are then prepared for each account, the size of which 
is exactly the same as the dempyo. The summary dempyo sheet 
contains: the name of the account; the number of transfer dem- 
pyos and their total; the number of cash dempyos and their total; 
and the grand total of all dempyos and their amount. The Ac¬ 
counting Bureau then totals the debit and credit transfer dempyos 
from the summary dempyo sheets, which should agree. Then the 
Accounting Bureau adds up the total cash receipts and the total 
cash payments from the summary dempyo sheets and checks the 
cash balance of the day with the Cash Receipt and Payment Bu¬ 
reau. On the following day, the Accounting Bureau prepares the 
Entries and Day Register Book (SHIWAKE NIKKI CHO) from 
the summary dempyo sheets, the Ledger Book from the Entries 
and Day Register Book 1 and the balance sheet from the Ledger. 
The Accounting Bureau then prepares two Grand Total Dempyo 
Slips (SOKATSU SHUKEI HYO) of which one is for debit and 
the other is for credit side. These slips show the total number and 
the total amount of transfer and cash dempyos and the grand 
totals of their number and amounts. They are placed on top of all 
dempyos of the corresponding side, bound and kept in the bank. 

5. Handling of transactions which have no immediate effect on bank 
assets 

Transactions which have no immediate effect on the bank assets 
and require no dempyo making include collection, safe deposit box 
rental and safe keeping. When a bank accepts bills and checks 
for collection from its customers, their receipts have no immediate 
effects on the bank assets until the bills and checks are collected. 
No dempyo making, therefore, is necessary at the outset. There 
are two types of collection requests: one is the bills, checks, etc., 
payable at home (TOSHO DAIKIN TORITATE) ; and the other 
is the bills, checks, etc., payable elsewhere (TASHO DAIKIN 
TORITATE) 2 . Rental of safe deposit boxes is a comparatively 
new business in Japan. This operation may or may not affect the 
bank's assets at the outset depending upon whether the fee is re¬ 
ceived in advance or not. Safe keeping, as its name implies, means 
keeping of valuables, securities and the like by a bank for the 
customer and the bank may or may not receive fees in advance. 

B. NAMES OF ACCOUNTS 

Special banks maintain a few different accounts from ordinary 
banks due to the special characteristics of some of the functions 
they perform. In the case of ordinary banks, all accounts appear- 

l See the preparation of Entries and Day Register Book and Ledger Book below 

A See Collection Division. 


16 



ing on their account settlement report have similar characteris¬ 
tics. The names of the accounts shown below are the names of 
the accounts prescribed by the Ministry of Finance to be used by 
ordinary banks in their balance sheets and their profit and loss 
statements. 

1. Balance sheet items (ZANDAKA HYO or TAISHAKU TAI- 
SHO HYO KANJO) 

a. Debit side (KARI KATA or SHIS AN KANJO). 

(1) Cash and deposits (GENKIN AZUKE KIN KANJO) 1 : 

(a) Cash (GENKIN or KINGIN). 

(b) Deposits (AZUKE KIN)—Deposits with Bank of Japan 

(NIHON GINKO ENO YOKIN). 

(c) Bullion and Foreign Currency (CHI KINGIN, GAIKOKU 

TSUKA). 

(2) Call loans (KORURON) 2 . 

(3) Securities (YUKA SHOKEN KANJO) : 

(a) National Government Bonds (KOKU SAI) : 

National bonds on hand (UCHI TEMOTO ARITAKA). 

(b) Local Bonds (CHIHO SAI). 

(c) Foreign Government Securities (GAIKOKU SHOKEN). 

(d) Corporation Bonds (SHASAI). 

(e) Stocks (KABUSHIKI). 

(4) Bills discounted (WARIBIKI TEGATA KANJO) : 

(a) Bank Acceptance Bills (GINKO HIKIUKE TEGATA). 

(b) Commercial Bills (SHOGYO TEGATA). 

(c) Bills Secured by Goods (NITSUKE KAWASE TEGATA). 

(5) Loans (KASHITSUKE KIN KANJO) 3 : 

(a) Loans on Bills (TEGATA KASHITSUKE). 

(b) Loans on Deeds (SHOSHO KASHITSUKE). 

(c) Overdrafts (TOZA KASHIKOSHI). 

(6) Loans of Securities (KASHITSUKE YUKA SHOKEN). 

(7) Foreign Exchange (GAIKOKU KAWASE KANJO) : 

(a) Foreign Exchange Purchased (KAIIRE GAIKOKU KA¬ 

WASE). 

(b) Interest Bills (RITSUKE KAWASE TEGATA). 

( c ) Due from Foreign Correspondents (GAIKOKU TATEN 

KASHI). 

1 The Yokohama Specie Bank calls its Current Accounts with Bankers (TOZA YOTAKU KIN) 
and its Special Deposits with Bankers (BETSUDAN YOTAKU KIN). It also handles the Public 
Loans and Coupons Funds Deposited with Bankers (KOSAI GAN-RI SHIHARAI KI-YOTAKU 
KIN). The last item represents the funds deposited with other banks for the purpose of paying 
interests and principals on public loans. 

2 The Yokohama Specie Bank handles Call Loans and Loans on Deeds (SHOSHO KASHIT¬ 
SUKE) in its Advances Account (KASHITSUKE KIN KANJO). 

3 Besides the accounts listed under the heading, the Yokohama Specie Bank carries the Advance 
to Government Account (SEIFU KASHI-AGE KIN KANJO), Bad and Doubtful Debts Account 
(TODOKORI KASHI KIN KANJO) and the Advances for Export Bills Account (YUSHUTSU 
KAWASE MAEGASHI KANJO). The last named represents advance made by the bank against 
the exportable merchandise until it becomes ready to export. The bank will, then, purchase the 
bill on the merchandise. The Yokohama Specie Bank handles the loans on deeds in Advances 
Account. 


17 



(8) Due from Correspondents Account—Domestic (TATEN 

KASHI KAN JO). 

(9) Due from Agency Account (DAIRITEN KASHI KANJO). 

(10) Liabilities of Customers for Acceptances and Guarantees 

(SHIHARAI SHODAKU MIKAERI KANJO). 

(11) Movable and Immovable Items (DOSAN FUDOSAN 

KANJO) : 

(a) Land, Building, Furniture and Fixtures used in Operation 

(EIGYO YO DOCHI TATEMONO JUKI). 

(b) Movable and Immovable Properties in Possession (SHOYU 

DOSAN, FUDOSAN). 

(12) Stockholders’ Accounts (KABUNUSHI KANJO) : 

Unpaid Capital (HARAIKOMI MISAI SHIHON KIN) 
b. Credit side (KASHIKATA KANJO). 

(1) Deposits (YOKIN KANJO) P 

(a) Current Accounts (TOZA YOKIN). 

( b ) Special Current Accounts (TOKUBETSU TOZA YOKIN). 

( c ) Deposit at Notice Accounts (TSUCHI YOKIN KANJO). 

(d) Fixed Deposit Accounts (TEIKI YOKIN KANJO) : 

(e) Miscellaneous Deposit Accounts (ZATSU YOKIN KAN¬ 

JO) : 

1. Special Deposit Account (BETSUDAN YOKIN KAN¬ 

JO). 

2. Deposit Certificate Account (YOKIN TEGATA). 

(2) Borrowed Funds (SHAKUYO KIN KANJO) : * 1 2 

(a) Borrowed on Deeds (KARIIRE KIN KANJO). 

(b) Rediscounted Bills (SAI-WARIBIKI TEGATA). 

(3) Call Money (KORU MANE) 3 4 . 

(4) Borrowed Securities (KARIIRI YUKA SHOKEN). 

(5) Foreign Exchange (GAIKOKU KAWASE KANJO) : 

(a) Foreign Exchange Sold (URIWATASHI GAIKOKU KA¬ 

WASE). 

(b) Due to Foreign Correspondents (GAIKOKU TATEN 

KARI). 

1 The Yokohama Specie Bank, in addition to the accounts listed under the heading handles: 

1. War Notes Redemption Funds (GUMPYO HIKIKAE KI-YOKIN), representing the 
deposit of the Japanese Government to be used for exchanging the military notes. 

2. Public Loans Redemption and Coupon Payment Fund (KOSAI GANRI SHIHARAI KI- 
YOKIN), representing the Japanese Government deposit to be used for the payment of 
interests and principals on public loans. 

3. War Notes Taken Over from Government (HIKIUKE GUMPYO), representing the mili¬ 
tary notes taken over from the government. 

4. Partial Payments of Bills (TEGATA UCHIIRE KIN), representing the part payment on 
Bills for Collection, Interest Bills Receivable and Bills Discounted. This account is can¬ 
celled when the bill is fully paid. The Interest Bill Receivable represents the Bills secured 
by goods in foreign trade which bear interest from the day of discount until the day of 
payment. Refer to the discussion on foreign exchange. 

2 Besides the accounts listed under the heading, the Yokohama Specie Bank handles: 

1. Special Loans (BETTO SHAKUYO KIN), representing money borrowed from the Japa¬ 
nese Government for special purpose; and 

2. Overdraft Account with Bankers (TOZA KARIKOSHI), x’epresenting money borrowed 
from other banks on Current Account contract. 

3 The Yokohama Specie Bank handles the ordinary borrowings and Call Money from other banks 
into the Tyoans from Bankers (SHAKUYO KIN) account. 


18 



(6) Due to Domestic Correspondents (TATEN KARI). 

(7) Acceptances and Guarantees (SHIHARAI SHODAKU). 

(8) Miscellaneous Items (ZATSU KANJO) : 

(a) Unpaid Dividends (MIHARAI HAITOKIN). 

(b) Unpaid Interests, etc. (MIHARAI RISOKU SONOTA). 

(c) Unexpired Interests on Discount, etc. (MIKEIKA WARI 

BI KIRYO SONOTA). 

(d) Taxes on Deposits Interests (YOKIN RISHI SHOZEI). 

(9) Stock Holders’ Accounts (KABUNUSHI KANJO) : 

(a) Capital Accounts (SHIHON KIN). 

(b) Legal Reserves (HOTEI JUMBI KIN). 

(c) X Reserves (NANI JUMBI KIN). 

(d) X Accumulated Funds (NANI TSUMITATE KIN). 

(e) X Funds (KIKIN). 

(/) Profits for the Fiscal Year (TOKI RIEKI KIN) : 

1. Amount forwarded from the previous fiscal year 

(ZENKI KURIKOSHI KIN). 

2. Transfer of X Accumulated Funds (NANI TSUMI¬ 

TATE KIN MOTOSHIIRE). 

2. Profit and loss statement 

a. Profit accounts 

(1) Interests on Loans (KASHITSUKE KIN RISOKU) 

(2) Interests on Securities (YUKASHOKEN RISOKU) 

(3) Miscellaneous Interests Received (UKEIRE ZATSU 

RISOKU) 

(4) Interests on Discounts (WARIBIKI RYO) 

(5) Dividends Received (KABUSHIKI HAITO KIN) 

(6) Commissions Received (UKEIRE TESURYO) 

(7) Profits from Foreign Exchange Transactions (GAIKOKU 

KAWASE BAIBAI EKI) 

(8) Profit from Sale of X (NANI BAIBAI EKI) 

(9) X Refunds (NANI SHOKAN KIN) 

(10) Incomes from the Loan of Securities (YUKA SHOKEN 

KASHITSUKE RYO) 

(11) Rent from Land and Building (TOCHI TATEMONO 

CHIN GASHI RYO) 

(12) Profits from the Collection of Bad Debts (SHOKYAKU 

SAIKEN TORITATE EKI) 

(13) Transfer of Unpaid Interests, etc. (MIHARAI RISOKU 

MOTOSHIIRE SONOTA) 

(14) Amount Forwarded from the Previous Fiscal Year 

(ZENKI KURIKOSHI KIN) 

(15) Transfer of Accumulated Funds (NANI TSUMITATE 

KIN MOTOSHIIRE) 


» 


19 


b. Loss accounts 

(1) Interests on Deposits (YOKIN RISOKU). 

(2) Interests on Borrowed Funds (SHAKUYO KIN RISO¬ 

KU). 

(3) Miscellaneous Interests Paid (SHIHARAI ZATSURISO- 

KU). 

(4) Interests on Rediscount (SAI-WARIBIKI RYO). 

(5) Refund on Discount Interests (MOTOSHI WARIBIKI 

RYO). 

(6) Commissions Paid (SHIHARAI TESURYO). 

(7) Loss on Foreign Exchange Transactions (GAIKOKU KA- 

WASE BAIBAI SON). 

(8) Loss on X Transactions (NANI BAIBAI SON). 

(9) Loss from Bad Debts (TODOKORI KASHIKIN SHOK- 

YAKU). 

(10) Loss from the Depreciation of Securities (YUKASHOKEN 

KAGAKU SHOKYAKU). 

(11) Loss from x' Depreciation (NANI KAGAKU SHOK¬ 

YAKU). 

(12) Cost of Borrowing Securities (YUKASHOKEN KARIIRE 

RYO). 

(13) Rent on Land and Buildings (TOCHI TATEMONO CHIN 

GAR I RYO). 

(14) Taxes (ZEIKIN). 

(15) Pension and Extra Grant to Employees (KOIN ONKYU 

OYOBI ICHIJI KYUYO KIN). 

(16) Salaries (KYUYO). 

(17) Allowances (TEATE). 

(18) Travelling Expenses (RYOHI). 

(19) Transfer of Unexpired Interests on Discount, etc. (MI- 

KEIKA WARIBIKIRYO SONOTA MOTOSHIIRE). 

(20) Profit for the Fiscal Year (TOKI RIEKI KIN). 

C. FUNCTIONAL CLASSIFICATION OF A BANK 

The Japanese banking laws contain no provision concerning the 
kinds of books kept by banks. Therefore, any legal questions con¬ 
cerning bank books are referred to by the provisions in commer¬ 
cial code as well as to general practices and customs. Japanese 
commercial laws provide that: 

1. All business men are required to keep books systematic¬ 
ally and legibly, showing the every day business trans¬ 
actions, indicating any matters which cause the fluctu¬ 
ation of their assets. 1 

1 Commercial Code, Article 32. 


20 


2. All business men are required to keep a record in books 
of the inventories of movable, immovable and other 
assets and the liabilities accounts at the opening of the 
business or at the time of the registration of the cor¬ 
poration and at a definite time of each year. 1 

The above provisions clearly show that banks are required to 
keep an Entries and Day Register Book, an Inventory Book, and 
a Balance Book. In the actual practice of banking operations, 
however, there are many books other than these mentioned above 
which are kept by the departments in a bank. From the stand¬ 
point of accounting, all bank books are classified into two groups, 
namely, the main books (SHUYO BO) and the auxiliary books 
(HOJO BO). The former consists of Entries and Day Register 
Book, Ledger Book, and the Balance Book while the latter consists 
of all other books which are kept by each department. 

In this connection, it is necessary to give a brief outline of the 
division of functions of ordinary banks in Japan to show the ex¬ 
tent to which the many departments and bureaus are keeping 
different books. The functional classification 2 of a bank will 
naturally depend upon its size and the extent of business in which 
the bank is engaged. In general, the following departments and 
bureaus are found in an ordinary bank. 

1. Management Department (TOKATSU BU). 3 

a. Accounting Bureau (KAIKEI KA). 

b. Research Bureau (CHOSAKA). 

(1) Credit Research Division (SHINYO CHOSA KAKARI). 

(2) Economic Research Division (KEIZAI CHOSA KAKARI). 

c . Examination Bureau (KENSA KA). 

d. General Affairs Bureau (SHOMU KA). 

(1) Documents Division (BUNSHO KAKARI). 

(2) Supplies Division (YODO KAKARI). 

(3) Stocks Division (KABUSHIKI KAKARI). 

(4) Borrowing and Loaning of Securities Division (YUKA- 

SHOKEN TAISHAKU KAKARI). 

2. Operating Department (EIGYO BU). 

a. Operating Bureau (EIGYO KA). 

(1) Deposit Division (YOKIN KAKARI). 

(2) Loan Division (KASHITSUKE KAKARI). 

1 Commercial Code, Article 33. # . 

2 The banking operation of the Yokohama Specie Bank, given in Article 7 of its law which 
was promulgated by the Imperial Ordinance #29 of 7 July 1887 and later amended by law 
#65 in August, 1937 indicates that the bank is engaged in: (1) Foreign Drafts and Foreign 
Bills Secured by Goods: (2) Domestic Drafts and Bills Secured by Goods; (3) Loans; (4) Deposits 
and Safe Keepings; (5) Discount on Bills of Exchange, Promissory Notes, Securities and 
Collection Operations; and (6) Currency Exchanges. The Yokohama Specie Bank handled 
between 60 per cent to 80 per cent of Japan’s total foreign trade financing in prewar times. 

2 The Personnel Bureau is usually placed under the Management Department. 


21 



(3) Exchange Division (KAWASE KAKAR1). 

(4) Collection Division (TORITATE KAKARI). 

(5) Security Division (SHOKEN KAKARI). 

(6) Mortgage and Safe Deposits Division (TAMPO-HIN OYO- 

BI HOGOAZUKARI KAKARI). 
b. Receipt and Payment Bureau (SUITO KA). 

(1) Receiving Division (SHU-NO KAKARI).' 

(2) Paying Division (SHIHARAI KAKARI). 

(3) Clearing Division (KOKAN KAKARI). 




22 


III. MANAGEMENT DEPARTMENT 


The Management Department is generally divided into four 
bureaus: namely, the Accounting Bureau, the Research Bureau, 
the Examination Bureau, and the General Affairs Bureau. 

A. ACCOUNTING BUREAU 

The main books mentioned in the previous chapter are kept in 
the Account Bureau (KAIKEI KA or KEISAN KA). As it has 
been explained in the handling of Dempyos, the Accounting Bu¬ 
reau prepares Entries and Day Register Book (SHIWAKE NIK¬ 
KI CHO) from the summary Dempyo Slips, records the debit and 
the credit amounts of each account into the corresponding account 
in the Ledger Book (MOTOCHO) and prepares the Balance Book 
(ZANDAKA CHO) from the balance of each ledger account. 

1. Preparation of Entries and Day Register Book or Day Register Book 

(SHIWAKE NIKKI CHO or NIKKI CHO) 

In the discussions on the classification of dempyos into debit 
and credit by the Accounting Bureau, it has been stated that the 
cash receipt dempyos which are printed in red and the debit trans¬ 
fer dempyos which are printed in brown are classified into debit 
side and the cash payment dempyos which are printed in indigo and 
the credit transfer dempyos which are printed in green are classified 
into credit side. It is also stated that the summary dempyo sheets 
are prepared for each account of the debit and credit dempyos and 
all the accounts in the debit and credit sides are arranged in order of 
the accounts in the Ledger Book. The Accounting Bureau then lists 
these accounts on the debit and the credit sides of the Entries and 
Day Register Book in the order of accounts in the Ledger Book, re¬ 
cording the total amount of transfer, cash and their totals of each 
account in the debit and credit side of the book. The debit total and 
the credit total of the transfer accounts will thus balance. The 
cash balance of the previous day is added to the total cash receipts 
of the day and from this sum the total cash payments for the day, 
that is, the total credit amount, is deducted to show the cash bal¬ 
ance for the day. This cash balance is written in red ink below 
the total credit amount to balance off the book between the debit 
and the credit side. 1 


1 See item 6, appendix 3. 


23 



2. Preparation of Ledger Book 

The Ledger (MOTOCHO) 1 is sometimes called All Accounts 
Ledger (SOKANJO MOTOCHO). From the foregoing discus¬ 
sions on the bank entry making and the preparation of the En¬ 
tries and Day Register Book, it is apparent that the debit side of 
the Entries and Day Register Book represents cash and transfer 
receipts and the credit side represents cash and transfer payments. 
This is because all dempyos are made on the assumption that all 
transactions are cash transactions. Thus, the accounts shown on 
the debit dempyos, that is, the accounts shown on the cash receipt 
dempyos and the transfer receipt dempyos are in reality the credit 
accounts and the accounts shown on the credit dempyos are in 
reality the debit accounts. 2 

When it comes to recording the amount of each account on the 
Ledger from the Entries and Day Register Book, the debit amount 
of each account in the latter is credited to the respective account 
in the Ledger and vice versa, except the cash account. The re¬ 
cording of the cash account in the Ledger is done by transferring 
the total debit and total credit of all accounts, cash as well as 
the transfer amounts, from the Entries and Day Register 
Book to the respective sides of the cash account in the Ledger. 
The reason for doing this is to show the total amount of business 
done for the day in the cash account. After each account has been 
recorded in the Ledger, the Accounting Bureau calculates the 
balance of each account to be used for the preparation of the 
Balance Book. 

3. Preparation of Balance Book 

The Balance Book or Sheet (ZAND AKA CHO or ZAND AKA 
HYO) is sometimes called SOKANJO MOTOCHO ZANDAKA 
CHO, (Balance Book of all Ledger Accounts) NIKKEI HYO 
(Daily Account Sheet) and TAISHAKU TAISHO HYO (Register 
of Assets and Liabilities). 3 The debit and the credit sides are 
usually divided into two columns: one for the total and the other 
for the balance. The total column represents the total amount of 
all debit and credit of a given account and the balance column 
represents the balance of the account. The balance sheet contain¬ 
ing the total columns on both the debit and the credit sides is 
usually prepared at the end of each month and is called GEKKEI 
HYO (Monthly Account Sheet) in comparison to the NIKKEI 
HYO (Daily Account Skeet). 


1 See item 4, appendix 3. 

~ See Transfer Dempyo. 

3 See item 5, appendix 3. 


24 



B. RESEARCH BUREAU (CHOSA KA) 

It is divided into the Credit Research Division and the Eco¬ 
nomic Research Division. The former deals with the investiga¬ 
tion of credit standings of customers and the business practices of 
other banks which would be beneficial to the conduct of its own 
business and the latter deals with the research of general economic 
conditions which would help to guide the banking operations. 

C. EXAMINATION BUREAU (KENSA KA) 

Bank auditing can be classified under two main headings. One 
is the External Audits (GAIBU KANSA) and the other is the 
Internal Audits (NAIBU KANSA). The External Audits can 
also be divided into three different types: namely, the auditing by 
the Ministry of Finance, examination by the Clearing House and 
the auditing by the professional auditors. The internal audits 
are also divided into three different types: namely, auditing by# 
the bank auditors, examination by the stock holders and the audit¬ 
ing by the examiner of the examination bureau of the Bank. The 
Examination Bureau examines the Bank’s operations: that is, to 
see whether or not all bank transactions are properly recorded, 
whether or not the calculations of interest on deposits and loans 
are correct, and whether or not the policies of the head of each 
department and the manager of the bank are in accordance with 
the policies of the bank. 

The bank examiners, therefore, will be required to equip them¬ 
selves with a thorough knowledge of all the legal provisions con¬ 
cerning banks and bank operation, the articles of association, the 
records of resolutions of the stock holders and the various rules 
and regulations governing the actual conduct of bank operation. 
The rules and the regulations regarding the conduct of bank oper¬ 
ation refer to the accounting rules, rules defining the functions 
of each department and other rules and regulations concerning 
the internal affairs of the bank. 

After all the bank operations have been examined, the examiner 
in the Examination Bureau is required to submit a report to his 
superior on the results of his examination. This report is based on 
facts and submitted with other financial reports which the exam¬ 
iner has gone over. When the examiner finds certain matters for 
which he can not be responsible, he is required to supplement his 
report with the proper explanation. If he finds certain conditions 
which could be improved, he is also required to make recommenda¬ 
tions. In general, the examiner’s report contains statements con¬ 
cerning : 


25 


1. Whether all books are properly recorded and, if not, 
a statement of the specific cases where the examiner 
found mistakes. 

2. Whether all bills, documents and the documentary evi¬ 
dences are properly kept and a statement of any evi¬ 
dence of carelessness on the part of the employees. 

3. Any shortage or surplus in the bank cash balance and 
securities on hand. 

4. Whether or not all expense items and other profit and 
loss accounts are properly handled. 

Besides the above mentioned points, the examiner is also re¬ 
quired to make a report on the economic and financial conditions 
in the locality where the bank is situated, an evaluation of the 
management policy of the bank, the character and the morale of 
the bank employees and the recreational facilities for the employ¬ 
ees. The covering letter of the examiner’s report shows the date, 
the address of the examiner, the title, the signature, and the seal 
of the examiner and the statement that “the accuracy of the finan¬ 
cial statements accompanying herewith is recognized after the 
comparison and the examination of the same with the books and 
records.” 

D. GENERAL AFFAIRS BUREAU 

The General Affairs Bureau (SHOMU KA) is divided into 
the Documents Division, the Supplies Division, the Stock Division, 
and the Loaning and Borrowing of Securities Division. 

1. Documents Division (BUNSHO KAKARI) 

This department handles matters relating to the preparations 
for the stock holders’ meetings, amendments of the articles of as¬ 
sociation, bank personnel problems and handling and keeping of 
all bank communications and documents. 

2. Supplies Division (YODO KAKARI) 

This department handles the payment of all expense items and 
the keeping of bank properties. Some of the expense items con¬ 
sist of taxes (ZEIKIN), salaries and allowances (KYURYO 
TEATE), travelling expenses (RYOHI), repairs (SHUZEN), 
and other miscellaneous expenses (ZAPPI). This department is 
also responsible for preparing, at the end of every fiscal year, the 
expense budget for the coming fiscal year, and for keeping the 
expenditures on various items within their budget limit. When 
the expenditure on a certain item exceeds its budget limit, the 
manager’s permission is required to pay out the excess amount. 
The auxiliary books kept in this division are: details of Current 


26 


Expense Book (KE1HI ME ISA l CHO) 1 , and the details of the 
Property Books, such as Details of Land and Buildings (TOCHI 
OYOB1 TATEMOI^O MEISAI-CHO) 2 , and the Details of Furni¬ 
ture (JUKI MEISAI-CHO) . 3 

3. stock Division (KABUSHIKI KAKARI) 

This division handles affairs relating to stock transfer and divi¬ 
dend payment. The following auxiliary books are kept in this 
division: 

a. Register of Shareholders (KABUNUSHI MEIBO) . 4 

b. Register of Shareholders’ share number book (KABUNUSHI 

MEIBO FUZOKU BANGO-CHO). 5 

c. Register of Numbers of Share Certificates (KABUKEN 

BANGO CHO). 

d. Register of Shares on Call (KABUKEN HARAIKOMI KIN- 

YU-CHO). 6 

e. Register of Transfer of Shares (KABUSHIKI MEIGI KA- 

KIKAE KINYU-CHO). 7 

/. Details of Dividends (MAITO KIN MEISAI-CHO). 8 

4. Loaning and Borrowing of Securities Division (YUKA SHO- 
KEN TAISHAKU KAKARI). 

This division handles the loaning and borrowing of securities. 
The borrower and the lender agree to return the same kind and 
quantity of securities involved in the transaction. However, the 
securities returned to the lender do not necessarily have to have 
the same registered numbers as those of the securities borrowed 
originally. 

The following books are kept in this department: 

a. Borrowed Security Book (KARIIRE YUKASHOKEN SEIRI 

CHO). 

b. Loaned Security Book (KASHITSUKE YUKASHOKEN 

SEIRI CHO). 


1 See item 7, appendix 3. 

2 See item 8, appendix 3. 

3 See item 9, appendix 3. 

4 See item 10, appendix 3. 

5 See item 11, appendix 3, 

6 See item 12, appendix 3. 

7 See item 13, appendix 3. 

8 See item 14, appendix 3. 


27 



IV. OPERATING DEPARTMENT — DEPOSIT DIVISION 1 


As has been shown in the previous outline, the Operating De¬ 
partment is subdivided into the Operating Bureau and the Receipt 
and Payment Bureau. The Operating Bureau is further divided 
into five divisions: namely, the Deposit Division, the Loan Divi¬ 
sion, the Exchange Division, the Collection Division, and the Mort¬ 
gage and Safe Deposits Division. The Receipt and Payment Divi¬ 
sion is also divided into the Receipt Division, the Payment Divi¬ 
sion and the Clearing Division. The following discussions on the 
explanation of accounts, books kept and the functions performed 
by each division will follow according to the above order. 


A. FIXED DEPOSITS 


The fixed deposits (TEIKI YOKIN) as a rule, are limited to 
deposits of 100. yen or more for over six months. In some cities 
in Japan, however, exceptions are found where the minimum is 
lowered to 50. yen and the length of the deposit period to three 
months. 2 The interest paid on this deposit is higher than other 
kinds of deposits and the same interest rate is applied regardless 
of the length of the deposit. No deposit is allowed to be with¬ 
drawn before its maturity date. Although it is the rule that the 
Fixed Deposit Certificate is transferable, clauses are usually in¬ 
serted in the contract restricting such transferability. The certi¬ 
ficate is often used by the depositor for obtaining loan from the 
bank which issued the certificate. When the depositor transfers 
the deposit certificate to a third party, the bank is to be informed 
of the transfer. The deposit certificate does not in itself have any 
value; that is, when a third party acquires the certificate without 
going through the process of formal transfer, the third party has 
no claim on the deposit. 

When a bank makes a loan to the holder of a deposit certificate, 
it can cancel the loan against the deposit, providing the claims of 
the depositor against the bank and the claims of the bank against 
the depositor conform to the following conditions: 


1 The Deposit Division of the Yokohama Specie Bank, besides handling all of the dennsit* * 
discussed in this chapter, handles the operations relating to the current deposit with the Bank 
KARHRE KIN? tL T ? ZA 7 0TA Xy K J N : the loan from the Bank of Japan° S (NIHON GINKO 
bankers MBETSUDANYOTAKU°MN) ’ “ S ‘ m0ney and the speclal deposlts with 

* The minimum period of fixed deposits in Yokohama Specie Bank is six months but there are 
ases where the deposit runs for one year. The interest calculation on the one-year fixed deDoait. 
however, is usually based on a six-months’ compounded method. * * P t, 

28 



a. Mutual claims must exist. 

b. Both claims should have the same purpose. 

c. Both claims should be within the period of payment. 

d. The nature of the obligations should be such that they could 

be cancelled. 

e• There must not be any provision which would prevent the 
cancellation of the two claims. 

All applicants for the fixed deposits are required to submit to 
the bank the sample of the seal impression (INKAN YOSHI). 
The deposit is payable to any person who is designated by the 
depositor or to the heir of the depositor. When the depositor loses 
the deposit certificate, he is required to notify the bank imme¬ 
diately. If it is not found after 30 or 60 days, depending upon 
the custom of the bank, the depositor must submit a request for 
the reissuance of the certificate with the signature of two wit¬ 
nesses. When the depositor loses his seal, the impression of 
which he gave to the bank, he is required to notify the bank 
immediately, and a sample of the impression of the new seal must 
be submitted. When the depositor wishes to transfer the claim on 
the deposit to another person by changing the name of the depos¬ 
itor on the certificate, it must be reported to the bank on a proper 
request form. 

There are three kinds of auxiliary books kept by the deposit 
bureau for this deposit: namely, Ledger of Fixed Deposits (TEIKI 
YOKIN MOTOCHO) b Register of Fixed Deposits (TEIKI YOKIN 
KINYU CHO) 1 2 , and Fixed Deposits Maturity Book (TEIKI YO¬ 
KIN KIJITSU-CHO). 3 

B. DEPOSITS AT NOTICE 

The deposit at notice (TSUCHI YOKIN) has a provision 
whereby seven days of waiting is required from the day of de¬ 
posit, except for banks in the Japanese colony. After the seven- 
days period, two days of advance notice is required before the 
deposit can be withdrawn. The amount of deposit is limited to 
50,000. yen among the A grade banks in Tokyo, while this ac¬ 
count varies according to the locality where the bank is situated. 
This limitation may be 30,000., 20,000., 10,000., 5,000., or 3,000. 
yen. Among the large city banks of Tokyo, Osaka, Kobe, and 
Nagoya, deposit certificates are issued to the depositors, while 
in many cases Pass Books are issued in place of the certificate. 
The holder of this deposit certificate seldom transfers it to others 
as it can be withdrawn within a short period of time, and as is 


1 See item 15, appendix 3. 

2 See item 16, appendix 3. 

3 See item 17, appendix 3. 


29 



true in the case of the fixed deposit, the depositor is required to 
submit to the bank the sample of his seal impression and his sig¬ 
nature which are used for identification purposes. 

The Deposit Bureau keeps different kinds of books, depending 
upon whether the bank issues deposit certificates 1 or pass books 
against the deposits. When the bank issues a deposit certificate, 
the transaction is recorded in the Register of Deposit at Notice 
(TSUCHI YOKIN KINYU-CHO) 2 , and the Ledger of Deposit 
at Notice (TSUCHI YOKIN MOTOCHO). 3 

When the bank receives an advance notice for the payment, 
the notice is recorded on the Advance Notice of Withdrawal of 
Deposit at Notice Book (TSUCHI YOKIN HIKIDASHI YOKO- 
KU HIKAE CHO). 4 

C. SPECIAL CURRENT DEPOSITS 

The Special Current Deposit (TOKUBETSU TOZA YOKIN) 5 
is a demand deposit which can be withdrawn at any time. The 
minimum amount of deposit is limited to 10. yen. A Pass Book 
(KAYOI CHO) is issued to the depositor instead of a deposit cer¬ 
tificate. The minimum bank balance on which the interest is to 
be paid is generally 50. yen or 100. yen, depending upon the bank. 
The depositor is required to submit to the bank the sample of his 
seal impression and his signature which are used for identification 
purpose. 

The Deposit Bureau keeps a Ledger of Special Current Accounts 
Book (TOKUBETSU TOZA YOKIN MOTOCHO) 6 , a Register 
of Special Current Accounts Book (TOKUBETSU TOZA YOKIN 
TSUKIKOMI KINYU-CHO) 7 and Ledger Balance Book of Spe¬ 
cial Current Accounts (TOKUBETSU TOZA YOKIN MOTOCHO 
SASHIHIKI ZANDAKA-CHO) . 8 The Deposit Bureau also keeps 
a depositor’s card file to facilitate the finding of a particular ac¬ 
count in the Ledger Book. This card file is usually arranged in 
the English alphabetical order and contains the name of the de¬ 
positor, the account number, the date on which the account was 
opened, the date of cancellation, and other particulars. 9 

D. CURRENT DEPOSITS 

1. Explanation of current deposits and checks 

The Current Account (TOZA YOKIN) is one of the demand 

1 Yokohama Specie Bank issues deposit certificates. 

2 See item 19, appendix 3. 

3 See item 18, appendix 3. 

4 See item 20, appendix 3. 

5 This deposit is also known as KOGUCHI TOZA YOKIN. 

6 See item 21, appendix 3. 

7 See item 22, appendix 3. 

8 See item 23, appendix 3. 

9 See item 24, appendix 3. 


30 



deposits which is in some respects similar to the checking account 
in the United States. In Japan, the credit standing of a depositor 
of this account is thoroughly investigated in advance. A contract 
is signed between the depositor and the bank before the account 
becomes effective. Article 71 of the Japanese check law (KO- 
GITTE HO) provides that a person who overdraws a check is 
subject to a fine of not more than 5,000. yen. In order to show 
the conditions of the current account contract, the following 
translation of the contract form is presented. This form of con¬ 
tract was approved as a basic rule by member banks of the Tokyo 
Clearing House and is being used, with slight modifications, by 
many banks in Japan. 

The Current Account Regulation 

Date: 

To X Bank: 

Upon the occasion of opening a current account with your bank, 
I hereby agree to all the points enumerated below: 

(1) Deposits can be made into the current account with 
cash and with other items which can be collected im¬ 
mediately, such as checks, bills and notes, interest cou¬ 
pons, postal money exchanges, dividend receipts, and 
other certificates. 

(2) No payment is to be made against the above collection 
items until they, in turn, have been collected. 

(3) When a collection item becomes dishonoured, this bank 
shall not be obliged to take legal steps to protect the 
claims on the item for the depositor unless it is so re¬ 
quested in advance. The dishonoured item shall be re¬ 
turned to the depositor and corresponding amount will 
be deducted from the deposit. 

(4) When the current account is to be withdrawn, the 
depositor is required to use the form of check estab¬ 
lished by this bank. 

(5) If this bank is made as the place of payment of a note 
or a bill by the depositor when he issues a promissory 
note or a bill of exchange or when he accepts the pay¬ 
ment of a bill of exchange, such action is regarded by 
this bank as a payment request made by the depositor. 
When this bank is presented with the above note or 
bill after its maturity date, the amount is deducted 
from the account of the depositor and paid to the per¬ 
son from whom the bill or the note was presented. 

(6) When this bank guarantees the payment of a check 
drawn by the depositor, the amount is deducted from 


31 


the depositor’s account as security against the guar¬ 
antee. 

(7) When the balance of the current deposit account is in¬ 
sufficient to make a payment on a check or a bill, this 
bank does not make a part payment on the check or 
on the bill. When several checks are presented for 
payment at the same time and the balance is insuffi¬ 
cient to make payments on all the checks, this bank 
uses its own discretion as to which checks may be 
paid first. 

(8) The impression of the seal is to be submitted to this 
♦ bank. The seal on which the impression is made is 

the one which the depositor uses on checks and on 
bills. When an agent is to act for the depositor in 
issuing checks and bills, the name of the agent and 
the impression of his seal are to be submitted to the 
bank. 

(9) When checks or bills have been paid by this bank after 
the comparison of the impression of the seal with the 
one mentioned above, this bank is not liable for any 
damage which is caused by loss or theft of the seal. It 
is also not liable for any damage which is caused by 
the payment of a check or bill which has been forged 
or altered and where the forgery and the alteration 
are not easily detectible. 

(10) When a pass book, deposit slip, check book or seal is 
lost this bank should be notified immediately. • 

(11) The bank pass book shall be presented to this bank 
more than once a month in order to be recorded and 
whenever the depositor finds a mistake this bank 
should be notified. 

(12) The method of interest calculation and the rate are to 
be based upon the rules of this bank and whenever 
any change is made this bank will notify the depositor. 

(18) The interest on the current account is to be calculated 
in June and in December of each year and the request 
for approvals are to be made. 

(14) In addition, the depositor of the current deposit will 
be subjected to the laws regarding the use of checks 
and the use of deposit slips. In case of damage caused 
by the violation of these laws and the above rules this 
bank shall not be made liable. 

(15) This current account shall be subject to cancellation 
at any time when it is deemed necessary by this bank. 



When the account is cancelled, the unused checks will 
be returned to this bank. 

Address 
Name (Seal) 

When the contract is signed and money is deposited into the 
current account, the bank in turn, will issue a check book, a deposit 
book and a pass book. The deposit book contains many deposit 
slips and the pass book is used to copy the bank ledger book of 
the depositor’s account. The depositor is in turn required to give 
the bank a receipt for the check he received from the bank. A 
check 1 can be drawn in one of three forms: namely, a check pay¬ 
able to a certain person or to his order (SASHIZU SHIKI), pay¬ 
able to bearer (JISANNIN SHIKI) and payable to a definite per¬ 
son (KIMEI SHIKI). The check which is made out in KIMEI 
SHIKI can be changed to other forms by the proper endorsement. 
The drawer of a check, in order to prevent the check from being 
lost or stolen, may draw a parallel line on the face of the check, 
and between these lines he may or may not write the word “bank” 
or the payee’s name. This type of check is known as Ordinary 
Lined Check (IPPAN SEMBIKI KOGITTE). In this case the 
drawee bank is obliged to pay the sum to the bank or to the person 
so designated. On the other hand, when the drawer writes the 
name of a specified bank between the parallel lines, the drawee 
bank is obliged to pay the sum to that specified bank. This type 
of check is known as Specially Lined Check (TOKUTEI SEMBIKI 
KOGITTE). Once a check has been made into a Specially Lined 
or Ordinary Lined Check, it can not be changed to an ordinary check 
even by the drawer. 

2. Handling of current deposits 

The Deposit Bureau keeps a Ledger of Current Accounts (TOZA 
KANJO MOTOCHO) 2 , and a Balance Book of Current Accounts 
(TOZA KANJO MOTOCHO SASHIHIKI ZANDAKA-CHO) . 3 
The Current Accounts Balance Book is prepared at the end of each 
day and the total balance is checked with the same in the Account¬ 
ing Bureau. Besides the above two books, the Deposit Bureau also 
keeps the Evidence Book of Current Account Receipts (TOZA 
YOKIN SHOIN-CHO) 4 to record the receipts which were not re- 

1 The Japanese check laws provide that the period of presentation for the payment of check is 
ten days from the date of issue and that although the drawer of a check may issue a stop payment 
notice, this order will not he effective during the ten-days period if the paying hank already had 
paid the check. However, if the check is not paid at the time when the bank received the stop 
payment notice from the drawer, the hank can refuse the payment on the check even if it is 
presented before the expiration of the ten-days period. When a check is presented for payment 
after the expiration of the ten-days period from the date of issue^ the bank may still pay the 
check providing that there has been no stop payment notice on it from the drawei. 

2 See item 25, appendix 3. 

3 See item 26, appendix 3. 

4 See item 27, appendix 3. 


33 



9 


ceived directly from the customer. When the bank guarantees 
the payment of a check for the customer, the transaction is recorded 
on the Register of Check Payment Guarantee (SHIHARAI HOSHO 
KOGITTE KINYU-CHO) 1 , and the amount guaranteed is de¬ 
ducted from the customer’s account. When the interest on the 
current account has been calculated, it is added to the balance of 
the account and a request for approval by the customer is sent to 
the customer by the bank. The current account can be cancelled 
by the initiative of either party, and when it is cancelled, the de¬ 
positor is required to send a check to the bank covering the interest 
and principal of the account with the receipt for the total amount. 
If the depositor dies before the cancellation of the account, the 
account will automatically be cancelled, and the balance is trans¬ 
ferred to the Special Deposits Account (BETSUDAN YOKIN) 
and is later paid to the heir of the depositor. In such a case, the 
heir is required to submit to the bank with certificate showing that 
he is the legal heir. When the depositor changes the seal which 
he used on his checks, he is required to notify the bank of the 
change. He is also required to notify the bank of the loss of his 
bank book. 

E. MISCELLANEOUS DEPOSITS 

The deposits which do not belong to^my of the above mentioned 
groups are classed into miscellaneous deposits (ZATSUYOKIN). 
There are two kinds of deposits in this class: namely, the Special 
Deposits Account (BETSUDAN YOKIN) and the Deposit Cer¬ 
tificate Account (YOKIN TEGATA KANJO). 

1. Special deposits account (BETSUDAN YOKIN KANJO) 

No deposit certificate is issued against this deposit, while in 
some cases deposit receipts are issued. Generally this deposit 
bears no interest nor does it have any definite agreed period of 
deposit. There are banks, however, which pay interest on this 
deposit and in such cases the interest rate on the current account 
is usually applied on this deposit. The items which usually enter 
into this deposit are: 

a. The payment of subscriptions on stocks belonging to other 
corporations, usually handled temporarily by this account. 

b. Guarantee funds on secured loans on bills (TEGATA UCHI- 
IRE KIN). 

c. The balance of a deceased depositor awaiting transfer to the 
heir. 

1 See item 28, appendix 3. 


34 



d. The balance of current accounts which have been cancelled 
and awaiting payment to customer. 

e. Moneys collected from interest coupons and the dividend pay¬ 
ments, etc., are usually kept in this account when the customer has 
no other deposit account with the bank. 

The Deposit Bureau keeps the Register Book of Special Deposit 
Accounts (BETSUDAN YOKIN KIN YU CHO) 1 , to record all the 
above types of deposits. 

2. Deposit certificate accounts (YOKIN TEGATA) 

The Deposit Certificate Account represents the certificate issued 
to a customer against the deposit. This certificate is a negotiable 
instrument which business men often use for payment in business 
transactions instead of cash. In recent years, however, Japanese 
banks have seldom issued deposit certificates. Instead, they issue 
self-addressed checks which are equally as good as deposit certi¬ 
ficates. The Deposit Bureau keeps the Register of Self Addressed 
Checks (JIKO-ATE KOGITTE KINYU-CHO). 2 


\ 


1 See item 29, appendix 3. 

2 See item 30, appendix 3. 


35 



* 


V. OPERATING DEPARTMENT — LOAN DIVISION 

(DISCOUNTS) 

The Loan Division (KASHITSUKE KAKARI) performs one 
of the most important functions in the Operating Bureau. It deals 
with making several different types of loans from the funds re¬ 
ceived by the Deposit Division. As it has been said in the previous 
discussion on the name of bank accounts, bank loans are divided 
into two main headings: namely, the Bills Discounted (WARIBIKI 
TEGATA) and Loans (KASHITSUKE KIN). The bills discounted 
are further divided into three types: namely, the Commercial Bills 
Discounted (SHOGYO TEGATA WARIBIKI), the discount of 
Bills Secured by Goods (NIGAWASE TEGATA) and the discount 
of Bank Acceptance Bills (GINKO HIKIUKE TEGATA). The 
loans are also divided into the Loans on Bills (TEGATA KASHIT¬ 
SUKE), the Loans on Deeds (SHOSHO KASHITSUKE) and the 
Overdraft (TOZA KASHIKOSHI). The discussions on these 
loans will be followed in the above order. 

A. BILLS DISCOUNTED 

1. Commercial bills discounted 

a. Kinds of commercial bills. The “commercial bills” are bills 
derived from commercial transactions between business men. A 
manufacturer may wish to finance the cost of raw materials during 
the period of manufacturing and selling the goods to a wholesaler, 
and a retailer may wish to finance the purchasing price of goods 
from a wholesaler during the period before the goods are actually 
sold. Behind each commercial bill, therefore, there is a shift of 
merchandise from one business man to another and when the mer¬ 
chandise in transit is sold the commercial bill is theoretically 
liquidated. There are two types of bills (TEGATA) in use in 
Japan: namely, the exchange bill (KAWASE TEGATA) and the 
promissory note (YAKUSOKU TEGATA). The exchange bill 
can be defined as a bill drawn by a person addressed to another 
requesting him to pay a definite sum of money to a third party at 
a certain time and place. The promissory note, on the other hand, 
is a promise made by a drawer to pay a definite sum of money to 
the drawee at a specified time and place. Article 1 of the Japanese 
laws on bills provides that the bill of exchange should contain: 


36 


(1) A written indication that it is a bill of exchange. 

(2) A brief statement requesting payment of a definite sum of 

money. 

(3) The name of a person who is to pay the sum. 

(4) Indication of the maturity date. 

(5) Indication of a locality where the sum is to be paid. 

(6) Name of the payee or the name of the person who would 

designate the payee. 

(7) Indications of the date and the place of the bill issued. 

(8) The signature and the seal of the drawer of the bill. 

When the amount of a bill is written in Japanese (in Chinese 
ideographs) as well as in Roman numerals and the two amounts 
are different, the amount written in Japanese is to be regarded as 
the true amount of the bill. 1 On the other hand, when two different 
amounts are shown either all in Japanese or all in Roman numerals, 
the smaller amount is to be regarded as the true amount of the bill. 2 
The maturity date of a bill is to be shown 3 either payable at sight 
(ICHIRAM BARAI), payable after a definite number of days after 
sight (ICHIRAM-GO TEIKI BARAI), payable after a definite 
number of days from the date shown on the bill (HITSUKE-GO 
TEIKI BARAI) or on a definite date (KAKUTEI-BI BARAI). 
When a bill contains no maturity date, the bill is to be regarded 
payable at sight. 4 

As to the indication of the locality where a bill is to be paid, when 
a bill is to be paid in Tokyo city or in Osaka city, it should be 
stated in the bill as such. When there is no such indication in the 
bill, it is regarded to be payable at the locality which is indicated 
beside the name of the payer. 5 

The place of payment of a bill is optional and whether the place 
of payment is indicated on the bill or not, it will not affect the 
validity of the bill. When there is no such indication on the bill, 
it is to be regarded payable at the address of the payer. When a 
bill has no indication as to the place of issue, the name of the place 
written beside the drawer’s name is to be regarded as the place of 
issue. Bills may be endorsed either payable to a specified person 
(KIMEI SHIKI) or in blank endorsement, without designating 
the endorsee with the endorser’s name and his seal under it. The 
latter method of endorsement is known as HAKUCHI SHIKI and 
the holder of the bill, in this case, is regarded as the endorsee. 6 
Endorsement may be made either on the reverse side of the bill 

i and 2 Japanese Laws on Bills, #20, 15 July 1932, Effective 1 January 1934, Article 6. These 

Laws are also applied to checks. 

3 Japanese Laws on Bills, #20, Article 33. 

4 Japanese Laws on Bills, #20, Article 2. * 

6 Japanese Laws on Bills, #20, Article 2, paragraph 3. 

6 Japanese Laws on Bills, #20, Article 16. 


37 



or on an allonge (FUSEN) on the bill. 1 When a payer pays the 
bill, the receiver will be asked to sign his name with seal on the bill 
and it will be given to the payer. Even when the payer has accepted 
to pay the full amount of a bill, the holder of the bill will be ob¬ 
liged to accept a part payment. In such a case, the amount and 
date on which the payment is made is shown on the bill and an 
extra receipt containing all the details concerning the bill, the 
amount received and date, is to be given the payer. The holder of 
the bill will have claim only on the amount of unpaid balance. 

As to the form of a promissory note, Article 75 of the Japanese 
law of bills provides that a promissory note should contain :■ 

(1) A written indication that it is a promissory note. 

(2) A statement of a promise that a definite sum is to be paid. 

(3) An indication of the maturity date. 

(4) An indication of a locality where the money is to be paid. 

(5) The name of the payee or the name of the person who would 

designate the payee. 

(6) Indication of the date and the place of the bill issued. 

(7) The signature and the seal of the drawer of the bill. 

Article 76 of the same law provides when a promissory note has 

no provision for the maturity date, it is to be regarded as payable 
at sight; and when there is no indication as to the place of issue 
of the bill, the drawer’s address is to be regarded as such. It also 
provides that when there is no indication of the locality of payment, 
the address of the drawer is to be regarded as such. According 
to the place of payment, the commercial bill can also be divided into 
the Bills Discounted Payable Here (TOSHO WARIBIKI TEGATA) 
and the Bills Discounted Payable Elsewhere (TASHO WARIBIKI 
TEGATA). The former signifies that the bills are payable at the 
city where the discounting bank is situated and the latter indi¬ 
cates that the bills discounted are payable in a different city. The 
bills payable elsewhere are sent to the corresponding banks for 
collection. In such a case the discounting bank charges an extra 
commission to cover the mailing expenses. It is important to 
mention at this point that a discounting bank must exercise cau¬ 
tion to see whether the bills presented for discount are really 
genuine commercial bills or accommodation bills (YUZU TE¬ 
GATA). 

b. Accommodation bills (YUZU TEGATA). This is a bill de¬ 
signed to strengthen the credit standing of a party in the bill by 
another party so that the first party will be able to obtain a loan 
from a bank or from another financial institution. Consequently, 

there is no actual commercial transaction involved when the bill is 
_ * 

1 Japanese Laws on Bills, #20, Article 13, paragraph 1. 


38 



issued and therefore, the credit risks on this type of bill is regarded 
much greater than a commercial bill. A bank usually does not 
grant discount privileges on this type of bill except when the parties 
involved in the Accommodation Bill have exceptionally high credit 
standings and if the bank approves of such a financing method. 
Even in this case, however, the loans are made not in the discount 
form, but in loan on bill form (TEG AT A KASHITSUKE). There 
are different names for this type of Accommodation Bill: one is 
SORA TEGATA or Empty Bill, and the other is KAKIAI TEGATA 
or Mutual Accommodation Bill. The SORA TEGATA or the Empty 
Bill is the kind of bill described above, while the KAKIAI TEGATA 
or the Mutual Accommodation Bills are bills drawn by two per¬ 
sons against each other. In the latter case, A draws a promissory 
note in favor of B, and B draws a promissory note in favor of A. 
A and B then endorse each other’s bill and take these to their banks 
and request loans. The difference between SORA TEGATA and 
the KAKIAI TEGATA is that in the former case only one man 
borrows the money, while in the latter case, two men are involved 
and borrow money from two different banks. From the stand¬ 
point of the discounting bank, therefore, the risks involved in the 
KAKIAI TEGATA are much greater than the SORA TEGATA 
or Empty Bills, and it may be assumed that Japanese banks are 
unwilling to make a loan on this type of bill. 

c. Handling of discount transactions. When a customer applies 
for a bank loan, regardless of the type of loan, or whether the loan 
is to be secured or not, the bank requests the customer to submit 
a business agreement (TORIHIKI YAKUJO SHO) 1 before the 
loan is granted. When bills are presented for discount by the 
customer, the head of the Loan Division examines the bills to see 
whether they are valid from the legal standpoint. After the exami¬ 
nation of the bills, the head of the Loan Division will then proceed 
to study whether the bills are acceptable for discount and his find¬ 
ings are recorded on the Consultation Card (KYOGI HYO KADO). 
The cards together with the bills are then sent to the manager’s 
desk for decision. When the bills are accepted, the customer is 
asked to endorse each bill with a clause to the effect that: 

‘The obligation for the preparation of repudiation of payment 
certificate on this bill is exempted (KYOZETSU SHOSHO 
SAKUSEI NO GIMU-0 MENJO SU)” or “Redemption With¬ 
out Expense (MUHIYO SHOKAN).” 

If either one of the above clauses is absent, the bank is obliged 
to prepare the certificate within two business days after the date 
of the refusal of payment. Otherwise, the bank loses the legal claim 

1 See item 31, appendix 3. 


39 





on the bill, although the bank usually collects the sum from the 
applicant of the discount. When any one of the above provisions is 
absent from the endorsement, the bank has to prepare the certifi¬ 
cate on an attested form. 1 If the Certificate of the Refusal for 
Acceptance has already been prepared, the Repudiation of Payment 
Certificate is unnecessary. The Repudiation of Payment Certifi¬ 
cate is a proof to all other parties concerned in the bill that the 
bill had been presented to the payer for payment on the day and 
the place designated in the bill in accordance with the provisions 
of the law on bills, and that the payer had refused the payment of 
the sum. 

When the repudiation of payment certificate is prepared, the 
bank, then, is required to notify either one or all of the endorsers, 
and the drawer of the bill, within four business days after the day 
on which the certificate was prepared. The notification form used 
when the Repudiation of Payment Certificate is prepared and not 
prepared is slightly different. The insertion of any one of the 
exemption clauses in the endorsement is important, especially when 
the bill is payable at a distant place when the bank has to send the 
bill for collection. It is also important that the bank has a sample 
of the impression of the customer’s seal which the customer uses 
on checks and bills. 

When all bills are properly endorsed by the customer, the Loan 
Division then calculates the discount interest on each bill, classifies 
the bills into Payable Here (TOSHO WARIBIKI) and Payable 
Elsewhere (TASHO WARIBIKI), and records them on the Register 
of Bills Discounted Payable Elsewhere (TASHO WARIBIKI TE- 
GATA KINYU CHO) 2 , and the Bills Discounted Payable Here 
(TOSHO WARIBIKI TEGATA KINYU CHO). 3 All bills are 
numbered in these books as well as on the bills. These bills are 
again recorded on the Ledger of Applicants of Bills Discounted 
(WARIBIKI TEGATA IRAININ MOTO CHO) 4 and the Ledger 
of Payer of Bills Discounted (WARIBIKI TEGATA SHIHARAI- 
NIN MOTOCHO). 5 These two ledgers can be combined into one 
book for the purpose of simplification. This combined book is 
called the Ledger of Commercial Bills (SHOGYO TEGATA MOTO¬ 
CHO) 6 or the Ledger of Discounted Bills (WARIBIKI TEGATA 
MOTOCHO). These discounted bills are also recorded in the Due 
Date Books (KIJITSU-CHO), one book for the bills payable here 
and another for the bills payable elsewhere. After all the record- 

1 The Laws on Bills, Article 44, paragraph 1. 

2 See item 32, appendix 3. 

3 See item 33, appendix 3. 

4 See item 34, appendix 3. 

8 See item 35, appendix 3. 

6 See item 36, appendix 3. 


40 



ings, the bills payable elsewhere are sent to the corresponding 
banks for collection 1 and the bills payable at home are kept in order 
of their maturity date at the manager’s desk. 

As to the dempyo making, when a bank makes a loan of 5,000. 
yen to A and it is deposited into A’s current account after the 
deduction of 50. yen for discount interest, the Loan Division will 
make the following dempyos. 2 

TRANSFER DEMPYO 

Debit Credit 

A’s Current Account._4,950. yen Bills Discounted 

Discount Interest_ 50. yen for A_5,000. yen 

Total _5,000. 5,000. 

At maturity, when the bills are paid by the payer with B’s check, 
assuming that B has a current account with the bank, the Loan 
Division will make the following entry: 

TRANSFER DEMPYO 

Debit Credit 

Bills Discounted for A 5,000. yen B’s Current Account 5,000. yen 

On the other hand, let us assume that the bills discounted were 
payable elsewhere and the bank sent them for collection to the 
Yasuda Bank. At maturity, these bills were presented to the payer 
by the Yasuda Bank and all were paid. The Yasuda Bank will then 
send the collection notice to the discounted bank. The discounted 
bank then will make the following entry to record the transaction: 

TRANSFER DEMPYO 

Debit Credit 

Bills Discounted for A 5,000. yen Yasuda Bank_ 5,000. yen 

In the above case, if the Yasuda Bank charged 1.50 yen for collec¬ 
tion fees, the transfer dempyo will be made as follows: 

TRANSFER DEMPYO 
Debit Credit 

Bills Discounted for A 5,000. yen Yasuda Bank_ 4,998.50 yen 

Commission_ 1.50 yen 


Total _ 5,000. 5,000. 

Article 3 of the Decree on the Application of Funds of Banks, 
etc. (GINKO NADO SHIKIN UNYO REI) of 19 October 1940 


1 Refer to the discussion on Bills for Collection Payable Elsewhere. 

2 Refer to the explanation of dempyos. • 


41 











provides for the control of discounts on commercial bills to be used 
by the borrower for working capital. The Enforcement Order ot 
the law specifies that a bank can loan to its customers up to the 
amount of a discount loan made during the previous fiscal half year. 
If the discount to any individual exceeds the amount of loan made 
in the previous six-months period, permission is required from 
the Ministry of Finance. To a new customer or a customer whose 
loan did not exceed 50,000. yen in the previous fiscal half year, the 
bank can loan him up to 50,000. yen. However, if a loan is payable 
within ten days or if it is made with the understanding of the 
government, the above limitations are not applicable. 

2. Bills secured by goods (NIGAWASE TEGATA) 1 

a. Bills secured by goods and cargo exchange certificate . These 
are bills drawn by a seller of goods requesting a buyer to pay a 
definite sum on a certain date at a certain place. These bills are 
secured by the merchandise in transit. The merchandise is not 
sent directly to the buyer, but to the transport company, which 
delivers the goods in exchange for the Cargo Exchange Certificate 
(KAMOTSU HIKIKAE SHO) or the Bill of Lading (FUNANI 
SHOKEN). The purchaser of the goods will have to pay the bill 
(TEGATA) before he can obtain the cargo exchange certificate or 
the bill of lading from a bank who collects the bill. In some cases, 
however, the Cargo Exchange Certificate or the Bill of Lading is 
subject to be given to the buyer when the buyer accepts the pay¬ 
ment of the bill at the collecting bank. The cost of insurance and 
the interest during the period of the goods in transit are usually 
added to the selling price of the goods when the seller discounts 
the bill. The discounting bank, on the other hand, establishes a 
SHIKKEN 2 on the goods in transit and grants the discount either 
on the full amount of the bill or on 70 percent or 80 percent of the 
amount of the bill. This is to insure against any possible losses 
which may be caused if the bill is later dishonored. Assuming 
that the bank made a loan on 70 percent of the amount of the bill, 
the balance of 30 percent is kept in the special deposits account 
as a guarantee fund. This fund is known as ATAMA KIN or 
Head Money, and it is returned to the customer when the bill is 
collected at maturity. 

Bills Secured by Goods are not usually accepted by the payer of 
the bill when the seller presents the bill for discount. The discount¬ 
ing bank, therefore, has no legal claim on the payer until he accepts 
the bill. The claims which the discounting bank has when the bill 

’The Yokohama Specie Bank handles Bills Secured by Goods (Domestic) as Commercial Bills 
Discounted (SHOGYO TEGATA WARIBIKI). 

2 Prior right of a mortgagee over other creditors in cases of bankruptcy, refer to the discussion 
in chapter YI. ( 


42 



is discounted, are claims on the applicant, the Cargo Exchange 
Certificate, or the Bill of Lading. Accordingly, it is important for 
the discounting bank to exercise caution in regard to the types 
of merchandise in transit and the reputation of the transport com¬ 
pany which issued the certificate or the bill of lading. When the 
merchandise in transit is perishable or subject to violent price fluc¬ 
tuations, the discounting bank will hesitate to extend credit. It is 
also important for the discounting bank to see that the goods in 
transit are properly insured. As a safety measure, the discount¬ 
ing bank requests the applicant to submit a Collateral Agreement 
to the bank and to endorse the Cargo Exchange Certificate or the 
Bill of Lading, thereby transferring all claims on the goods to 
the discounting bank. 

Another important point to be mentioned regarding the Cargo 
Exchange Certificate or the Bill of Lading is the prevailing prac¬ 
tice among the Japanese business men and the Japanese transport 
companies. As a rule, the cargo in question is not given to the 
buyer by the transport company without obtaining the Cargo Ex¬ 
change Certificate or the Bill of Lading. There is a custom known 
as SORA WATASHI or Empty Transfer, however, which means 
that the cargo is given to the buyer by the transport company 
without exchange of the Cargo Exchange Certificate or the Bill 
of Lading. For example, if a perishable cargo is kept in the 
warehouse of the transport company, due to the delay in arrival 
of the Cargo Exchange Certificate or the Bill of Lading, the trans¬ 
port company will deliver the goods to the purchaser providing 
that the payment of the bill has been guaranteed, thereby causing 
no financial loss to the parties concerned. If the transfer of cargo 
to the purchaser is made without this kind of justifiable reason 
it is usually based upon dishonest motives. The consequences of 
such a case would be as follows: 

1. Since there is no cargo on which the discounting bank 
can exercise its claim, it will result in a loss to the bank 
unless the credit standing of the applicant is sound and 
he pays the bill. 

2. The person who applied for the discount will be liable 
to the bank for the loss. 

3. The holder of the Cargo Exchange Certificate or the Bill 
of Lading has the right to claim the cargo from the trans¬ 
port company, but since there is no cargo, the holder of 
the certificate may have to suffer the loss. 

4. The transport company, which transferred the cargo to 
the buyer will be subject to a damage suit by the shipper 


43 


of the cargo for unlawful interference with the property 
rights of the shipper. 

b. Handling of bills secured by goods . As has been said in a 
previous paragraph, there are cases when the Cargo Exchange 
Certificate or the Bill of Lading is given to the buyer when he 
accepts the payment on the bill. This is known as HIKIUKE 
WATASHI or Document for Acceptance. From the standpoint of 
the discounting bank, however, this type of bill is not preferred over 
the delivery upon the payment of the Cargo Exchange Certificate 
or the Bill of Lading. The Loan Division keeps the Register of 
Bills Secured by Goods Discounted (NITSUKE KAWASE TE- 
GATA KINYU-CHO) 1 and the Ledger of Bills Secured by Goods 
Discounted (NITSUKE KAWASE TEGATA MOTOCHO). The 
Due Date Book of the Bills Secured by Goods Discounted (NIT¬ 
SUKE KAWASE TEGATA KIJITSU-CHO) 2 is also kept to record 
the bills in order of the maturity dates. The bills thus discounted 
are sent to the corresponding banks for collection. 3 

3. Bank acceptance bills (GINKO HIKIUKE TEGATA) 

There are cases where the seller of merchandise does not wish 
to take the financial risk of shipping his merchandise to an un¬ 
known buyer. In such case the seller may request the buyer to 
have the buyer’s bank accept the bill, guarantee its payment, before 
the seller presents the bill to his bank for discount. The discount¬ 
ing bank, therefore, is assured of the safety of the bill unless the 
credit standing of the buyer’s bank is doubtful. The discounting 
bank handles this type of bill in the same manner as the ordinary 
commercial bills discounted. 


* 


1 See item 37, appendix 3, 

2 See item 38, appendix 3. 

3 Refer to the discussion on Bills for Collection Payable Elsewhere, chapter VIII. 


44 



VI. OPERATING DEPARTMENT — LOAN DIVISION 
CONTINUED (OVERDRAFT AND LOANS) 


B. OVERDRAFT 

1. Explanation of overdraft (TOZA KASHIKOSHI) 1 

Overdraft is a form of loan arising from the overdrawing of a 
checking account by a customer after an agreement has been signed 
with the bank. Although the operation of the overdraft is handled 
by the Deposit Bureau, it is one of the several forms of loans made 
by Japanese banks. The overdraft loan is different in many re¬ 
spects from other types of loans, since the customer can overdraw 
the amount at any time when the need arises, and it can be repaid 
in part or in full at any time by depositing money with the bank. 
From the standpoint of the bank, it may be said that this type of 
loan is not as profitable as other types since the period of the 
overdraft loan usually runs from six months to a year, compared 
with the usual period prevailing in other types of loans which run 
from thirty days to sixty days. Furthermore, in the case of the 
overdraft, the loaning bank is not in a position to predict when 
the customer will overdraw his account and for how long. This 
uncertainty compels the bank to maintain a sufficient fund to meet 
this contingency. This condition naturally raises the problem of 
maintaining idle funds which otherwise could be utilized profit¬ 
ably. For these reasons, banks usually charge a slightly higher 
interest rate for the overdraft loan than for other types of loans. 

There are several types of overdraft loans: namely, Secured 
Overdraft (TAMPO-TSUKI TOZA KASHIKOSHI), Unsecured 
Overdraft (MUTAMPO TOZA KASHIKOSHI), Guaranteed Over¬ 
draft (HOSHO-TSUKI TOZA KASHIKOSHI), Overdraft for a 
Definite Period of Time (KIGEN-TSUKI TOZA KASHIKOSHI), 
Overdraft for an Indefinite Period of Time (MUKIGEN TOZA 
KASHIKOSHI), and Temporary Overdraft (ICHIJI KASHI¬ 
KOSHI). Explanation of these overdrafts follows according to 
the above order. 

2. Types of overdrafts 

a. Secured Overdraft (TAMPO-TSUKI TOZA KASHIKOSHI). 2 

1 The so-called Exchange Overdraft (KAWASE TOZA KASHI) used by the Yokohama Specie 
Bank is sometimes called Export Advance (KAWASE MAEGASHI) by the same, and handled 
in Advance for Export Bills Account (YUSHUTSU KAWASE MAEGASHI KANJO). It is 
similar to the overdraft, but the money advanced te the exporter in the exchange overdraft is 
used for the purchase of raw materials to be manufactured for export. The advance is repaid 
when the bank purchases the export bill from the exporter. 

2 See item 3i>, appendix 3. 


45 



When a customer deposits collateral with the bank for the over¬ 
draft contract it is called Secured Overdraft. This collateral is 
used as a guarantee against the payment of present and future 
overdraft balances. As it has been said in a previous paragraph, 
the customer need not have an overdraft balance when he signs 
the contract. The security then pledged is the security against 
a future overdraft balance and this type of contract is known as 
NETEITO KEIYAKU or Overdraft Collateral Contract which 
differs from the ordinary mortgage contract. 

The so-called “SHIKKEN” is a Japanese legal term, which means 
that the preferred right of a mortgagee over and above the claims 
of other creditors on the mortgage when the mortgagor is bank¬ 
rupt, will be nullified in ordinary mortgage or collateral contract 
when the mortgagor pays off the debt to the mortgagee. In the 
case of Overdraft Collateral Contract or NETEITO KEIYAKU, 
however, the nullification rule of SHIKKEN is not applied since 
the contract is based upon present as well as future overdraft 
obligations. Consequently, as soon as the overdraft collateral con¬ 
tract or the NETEITO KEIYAKU is signed, the contract itself 
establishes the mortgagee’s SHIKKEN over the mortgage whether 
the customer has an overdraft balance or not. The Japanese Su¬ 
preme Court as well as all Japanese legal experts recognize the 
existence of SHIKKEN as soon as the overdraft collateral contract 
is signed between the customer and the bank, but there seems to 
be some diversity of opinion among the legal experts as to when 
SHIKKEN becomes effective. Some experts believe the bank’s 
SHIKKEN over the collateral takes effect as soon as the contract 
is signed, while others believe that although the bank has SHIK¬ 
KEN over the collateral when the contract is signed, it does not 
become effective until the customer actually creates the overdraft 
balance. 

When a customer pledges security to the bank in the overdraft 
collateral contract, a certificate of Collateral Deposit (TAMPO 
HIN SASHIIRE SHO) 1 is signed with the customer’s seal and 
submitted to the bank with the collateral. Japanese banks seldom, 
if ever, accept a real estate mortgage for overdraft security. The 
securities generally accepted for this purpose are: Japanese na¬ 
tional or municipal bonds, corporate bonds and stocks, fixed deposit 
certificates, etc. When the collateral is a fixed deposit certificate 
of the overdraft borrower, the certificate of collateral deposit form 
will differ from the ordinary form. In this case the certificate of 
collateral deposit will contain information regarding the number 
of the fixed deposit certificate, the name of the issuing bank, the 

1 See item 40, appendix 3. 


46 



amount, the certificate number, the date of issue, the maturity date, 
the name of the depositor and the statement that: 

“Upon the occasion of being granted the overdraft loan by your 
bank . . . date, I hereby deposit the above fixed deposit certifi¬ 
cate as collateral against all my debts. When I delay the pay¬ 
ment of said obligation, you will be authorized to deduct all 
my debts from the principal and the interest of the above fixed 
deposit, regardless of the due date of the deposit and without 
any notice to me. When there is any shortage which is neces¬ 
sary to cover my debts, I will pay the same.” 

When the fixed deposit certificate deposited as collateral is not 
made out in the name of the overdraft borrower, the certificate of 
collateral form also differs slightly from the one mentioned above. 
When a bank receives a fixed deposit certificate as a collateral issued 
by a different bank, the receiving bank has to notify the issue bank 
that a SHIKKEN 1 has been established on the certificate. 

b. Unsecured overdraft (MUTAMPO TOZA KASHIKOSHI). 2 * 
Japanese banks generally do not extend an overdraft loan without 
security, unless the borrower is a well-known, large corporation 
whose credit standing is indisputable. The unsecured overdraft 
loan is usually granted for a short period of time as it is entirely 
based on the good reputation of the borrower. 

* c. Guaranteed overdraft (HOSHO TSUKI TOZA KASHIKO¬ 
SHI). The guaranteed overdraft is used in a case where the 
extension of overdraft credit is based upon the co-signature of a 
third person who guarantees the bank for payment of the over¬ 
draft balance in case the customer fails to do so. This type of 
overdraft is generally regarded as undesirable. 

d. Overdraft contract for a definite period (KIGEN-TSUKI 
KASHIKOSHI KEIYAKU). An overdraft credit for a definite 
period of time is called KIGEN-TSUKI TOZA KASHIKOSHI. 
Making the overdraft contract for a definite period of time has 
an advantage as well as a disadvantage from the standpoint of a 
bank. If and when the overdraft contract is made for a definite 
period of time and is secured by collateral, the bank will lose claim 
on the collateral when the fixed period ends and the contract ex¬ 
pires, regardless of whether the customer paid all the overdraft 
balance or not. If the customer refuses to pay the overdraft bal¬ 
ance after the expiration of the contract, the bank then will have 
to go through the trouble of taking proper legal steps to collect 
the overdraft balance from the customer. To avoid this situation, 
it is the common practice of Japanese banks to make the secured 
overdraft contracts for an indefinite period of time and the un¬ 
secured overdraft contracts for a definite period of time. 


1 Refer to the discussion on Secured Overdraft. 

2 See item 41, appendix 3. 


47 



e. Overdraft contract for an indefinite period (MUKIGEN KA- 
SHIKOSHI KEIYAKU). When an overdraft contract is made for 
an indefinite period of time, the contracting bank usually inserts a 
clause thereby enabling the bank to cancel the contract at any time 
if it so desires. 

/. Temporary overdraft (ICHIJI KASHIKOSHI). This type 
of overdraft is designed to meet the temporary needs of customers 
for a short-term loan of one or two days or a week. The Temporary 
Overdraft may arise from the overdrawing of a certain amount 
beyond the maximum amount of overdraft contracted for, or the 
overdrawing of the Current Account of a customer who has no 
overdraft contract with the bank. The Temporary Overdraft is 
generally not accompanied by a contract between the bank and the 
customer. The bank usually grants the Temporary Overdraft loan 
on the security of other types of deposits which the customer has 
with the bank. In such a case, the customer is requested to sub¬ 
mit an application for the Temporary Overdraft, which gives the 
bank an evidence of claim and enables it to cancel the loan against 
the deposit if necessary. The Temporary Overdraft can also be 
secured. When a bank makes payment on a deposit made with 
checks or bills payable by other banks in the same city, it is also, 
a Temporary Overdraft. In such a case, the checks or the bills 
have to pass through the Clearing House for collection, and the 
actual collection does not take place until a certain period of time 
elapses. When the payer of such checks or bills has a high credit 
standing and no credit risk is involved, the bank grants the Tem¬ 
porary Overdraft loan without any overdraft contract, but as a 
general rule many Japanese banks do not like to use this type of 
Temporary Overdraft loan. 

The Deposit Bureau keeps a Register of Collateral Security 
(TAMPO HIN KIN YU CHO) 1 and a Ledger of Overdraft Contract 
(TOZA KASHIKOSHI KEIYAKU GEMBO) 2 . 

The Decree on the Application of Funds of Banks, etc. (GINKO 
NADO SHIKIN UNYO REI) of 19 October 1940 and its Enforce¬ 
ment Order contain provisions for the control of Overdraft Loans. 
The amount of overdraft loans that can be made by banks to each 
customer is limited to 30,000. yen. 

C. LOANS ON DEEDS 

1. Definition of loans on deeds (SHOSHO KASHITSUKE) 

A loan on deeds is a loan made on a certificate of indebtedness 
or an I.O.U., and it is to be distinguished from a loan made on a 

1 See item 42, appendix 3. 

2 See item 43, appendix 3. 


48 



bill (TEGATA). It is a long-term finance loan as compared with 
a short-term business loan on commercial paper. In most cases it 
is secured by a deed on real estate property. In small localities 
where no sizable business activities prevail, the local banks may 
make this type of loan to utilize their surplus funds. Large city 
commercial banks, however, do not extend this type of long-term 
credit as a general rule. When such an account appears on the 
balance sheets of commercial banks in large cities, it usually repre¬ 
sents loans in the process of liquidation on installment payment 
plans. When loans on bills or overdraft loans become frozen or 
are turned into bad debts, they are usually transferred into this 
account, after agreement between the borrower and the bank. The 
borrower usually submits an additional mortgage, and the bank 
allows the borrower to pay off the debts on an installment basis. 
In such a case, the borrower is asked to submit a certificate of 
indebtedness and the bank establishes SHIKKEN on the mortgage. 

2. Certificate of indebtedness 

The certificate of indebtedness usually contains a provision re¬ 
garding the maturity of the loan. If there is no such provision, 
the loan must be paid upon request of the lender. 1 In this case, 
however, the lender may permit the borrower reasonable time to 
prepare the payment. The borrower, on the other hand, can repay 
the loan at any time. 2 As a rule, the interest on the loan is paid 
when the installment payment is due or at the end of each fiscal year 
of the bank. However, the lending bank can request the borrower 
to pay the interest when the contract is signed or when the loan is 
made. If the borrower fails to fulfill his obligations as to the pay¬ 
ment of .the interest or the principal, the lender is entitled to bring 
a suit against the borrower. 3 The rate of interest, in this case, 
should be based on the legal rate. However, when there is an agree¬ 
ment between the parties on the rate of interest to be used on 
such an occasion, and that interest rate is higher than the legal 
rate, the lender is entitled to use the higher rate, disregarding the 
legal rate. 4 

The certificate of indebtedness in this loan is usually made in an 
attested documentary form, and when there is a provision in the 
contract permitting the lender the right to exercise compulsory 
execution or foreclosure, the lender need not go through court pro¬ 
cedure to exercise the right. 5 When the certificate of indebtedness 
is in a private documentary form, the lender even if he is given 

1 Japanese Civil Code, 1896, Article 412, paragraph 3. 

2 Japanese Civil Code, Article 591. 

3 Japanese Civil Code, Article 415. 

4 Japanese Civil Code, Article 419. 

6 Japanese Civil Code of Legal Procedure, Article 559, paragraph 3, (1931 Amendment). 

49 



the foreclosure rights, will be obliged to establish his claim on the 
mortgage by court ruling before he can exercise the right on the 
mortgage. 

The Loan Division keeps the Register of Loans on Deeds (SHO- 
SHO KASHITSUKE KIN KINYU-CHO) 1 the Ledger of Loans 
on Deeds (SHOSHO KASHITSUKE MOTOCHO) 2 and the Due 
Date Book of the Loans on Deed (SHOSHO KASHITSUKE KI- 
JITSU-CHO) . 3 

D. LOANS ON BILLS 

1. Definition of loans on bills (TEGATA KASHITSUKE) 

The difference between a loan on bills and a loan on deeds is 
that, in the former case, the bill (TEGATA) is used for making 
the loan and the funds thus borrowed are generally used to expand 
the borrower’s business or for the undertaking of new enterprises; 
in the latter case, however, certificates of indebtedness are used 
to borrow money and the money thus borrowed is used, with some 
exceptions, for the purpose of liquidating old debts. Thus, the 
loans made on bills are accommodation loans rather than commer¬ 
cial, and are made either on promissory notes or on bills of ex¬ 
change. When a loan is made on a promissory note, the borrower 
of the loan is either the drawer or the endorser of the note. That 
is, the borrower may draw a promissory note with the lending bank 
as the payee or he may endorse a promissory note drawn by some¬ 
one else in which he is the payee. In case the loan is made on a bill 
of exchange, the bill may be one drawn by the borrower and ad¬ 
dressed to himself, made payable to the lending bank; or it may 
be one on which the borrower’s name appears as drawer, payee, 
and endorser, with another party as payer. The general practice 
of the Japanese banks is, however, that the payer of either the 
promissory note or the bill of exchange is the borrower from the 
bank and the endorser of either the promissory note or the bill of 
exchange is the guarantor of the bill. 

There are two types of guarantors in the loans on bills; one is 
an endorser of the bill, or a person who signs and seals the face of 
the bill with a specific written statement that he guarantees the 
bill. Another type is a person who guarantees the bill on the basis 
of the Japanese Civil Code; that is, the liability of the guarantor is 
not based upon the acts of the bill of laws (TEGATA HO), but is 
based upon the Japanese Civil Code. In the latter case, the nature 
of the guarantee may or may not be specified by the guarantor. 

1 See item 44, appendix 3. 

2 See item 45, appendix 3. 

3 See item 46, appendix 3. - 


50 



The specified guarantee means that the guarantee is applicable 
only to a specific debt, or only to a specific bill (TEGATA), while 
the unspecified guarantee represents the one in which the guaran¬ 
tor is responsible up to a definite sum of money and to a definite 
time limit, as in the case of the guaranteeing of the overdraft 
collateral contract. 

From the standpoint of a loaning bank, the financial risks in¬ 
volved in this loan are much greater than those in a loan on bills 
discounted. This is due to the entirely different purposes of these 
two loans and to the fact that the duration of a loan on bills is 
usually longer than that of a loan on bills discounted. Further¬ 
more, commercial bills held by Japanese commercial banks are 
eligible for rediscount by the Bank of Japan, while this privilege 
is not given to bills derived from loans on bills, except when secured 
by national or municipal bonds or corporate bonds of very high 
standing. 

2. Handling of loans on bills 

Although the methods of credit investigation for this loan differ 
in many respects from those used for loans on bills discounted, 
its physical handling is similar to that of loans on commercial bills 
discounted. Interest on this loan is charged in advance, as in the 
case of loans on commercial bills. At maturity, if the borrower is 
unable to pay the loan, and if the lending bank approves, the loan 
is renewed by having the borrower submit a new bill. The Loan 
Division keeps the Register of Loan on Bills (TEGATA KASHIT- 
SUKE KINYU CHO) 1 , the Ledger of Loan on Bills (TEGATA 
KASHITSUKE MOTOCHO) 2 , and the Maturity Book on Loan on 
Bills (TEGATA KASHITSUKE KIJITSU-CHO) . 3 

The Decree on the Application of Funds of Banks, etc. (GINKO 
NADO SHIKIN UNYO REI) of 19 October 1940 and its Enforce¬ 
ment Order contain provision that a bank is allowed to make a loan 
on bills or on deeds to a customer to provide working capital for 
the same up to the amount of loan made in the previous fiscal half 
year. In excess of this amount, the bank must obtain permission 
from the Ministry of Finance. In case a customer needs funds 
for a special purpose, such as for payment of stocks, donations, 
etc., the bank is allowed to make a loan on bills or on deeds up to 
the amount of 30,000. yen. The above limitations are not applied 
to a loan which is repaid within 10 days, or a loan which has been 
authorized by the government. 


1 See item 47, appendix 3. 

2 Same as the Ledger of Bills Discounted. 

3 Same as the Maturity Book of Bills Discounted. 


51 



E. CALL LOANS 


1. Definition of call loans (KORU RON) 

This is another type of accommodation loan, made in one of 
three different ways: the lender may make the loan directly to the 
borrower, or he may make the loan through a bill broker or the 
bill broker may borrow money from a bank and lend it to the bor¬ 
rower. The party who makes the loan is called TASHITE and 
the loan is called a call loan, while the borrower is called TORITE, 
and the amount borrowed is called call money. The call loan is 
chiefly designed to utilize the surplus funds of the bank for a short 
period of time and the amount involved in this loan is usually large. 
The interest rate on such a loan is a good indicator of the money 
market condition of a given locality at a given time. As a rule, 
this loan is made only on Japanese national or municipal bonds 
or on Grade A corporate bonds. 1 The lending bank usually makes 
this loan on bills and the amount of call loans outstanding is treated 
as part of a bank’s reserve requirement. The Japanese Bank Law 
of 1 January 1928 forbids the inclusion of any call loan whose 
maturity extends beyond seven days from the date of the loan in 
this account. A call loan whose maturity extends beyond seven 
days must be included in the loan account, and may not be listed as 
a call loan on the balance sheet. 

2. Kinds of call loans 

Call Loans can be divided into two types: one is the loan which 
does not require advance notice for payment by the lender to the 
payer; the other is a loan which does require such notice. A call 
loan which is payable before noon on the following day (YOKU- 
JITSU MONO) belongs to the former kind, while the latter group 
is divided into three different kinds. 

a. Unconditional call loan (MUJOKEN MONO). This is a loan 
which is to be settled by one-day notice of either the lender or the 
borrower of the loan after the day following the day on which the 
loan is made. The minimum number of days required before the 
loan is repaid is, therefore, three days, including the day on which 
the loan is made. 

b. Ordinary call loan (FUTSU MONO). This loan may be set¬ 
tled after one week from the day the loan has been made. One- 
day notice is required by either the lender or the borrower. 

c. Following month call loan (TSUGI-KOSHI MONO). There 
are two types of call loan under this heading. One is the Uncondi¬ 
tional Following Month Call Loan (TSUGI-KOSHI MUJOKEN 

1 The Yokohama Specie Bank is one of the constant borrowers of this loan. It pays the lowest 
prevailing interest rate and never deposits collateral with the lender for the loan. 

52 




MONO), which may be settled on one-day's notice, after the first 
day of the month following the day the loan is made. For example, 
if a call loan is made on the fifteenth of January, it may be settled 
upon one-day’s notice at any time after the first of February. The 
other type is a loan on which payment is deferred for a certain 
number of days after the first day of the month following the day 
the loan is made. 

F. STATUTORY LIMITATIONS ON CLAIMS 

1. Limitations on commercial bills 

The Japanese Civil Code provides that the period of effectiveness 
of an ordinary claim (SAIKEN) is 10 years. 1 On the other hand, 
the Japanese Commercial Code provides that claims held by banks 
which are derived from commercial acts (SHOKOI) are limited 
to five years 2 , unless otherwise specifically provided for in the 
commercial code or in other laws. The following brief discussion 
on the subject will be limited to commercial papers which the 
Japanese banks are most concerned with. 

a. Bill of exchange. The claim of a holder of a bill of exchange 
against a payer is effective for three years from the date of ma¬ 
turity. The holder’s claim against the endorser, the drawer or the 
guarantor of the bill is effective for one year from the day a Repu¬ 
diation of Payment Certificate 3 is prepared, or one year from the 
date of maturity if a repudiation certificate is not required. The 
claim of an endorser against a previous endorser or against the 
drawer of the bill is effective for six months from the day he pays 
and receives the bill, or from the date on which the legal action 
against him has been initiated by another endorser. 4 The person 
who is sued on the bill informs the endorser before him of the suit. 
Otherwise, the interruption of the prescribed period will not take 
place. 

b . Promissory notes . Article 77 of the Japanese Laws on Bills 
provides that the effective period of claims against other various 
parties in a promissory note is similar to that of the bill of exchange. 

c . Claims on loans made on other than bills. The claims of bank 
loans made on other than bills are to be effective for five years. 

d. Checks. The holder of a check has a claim against the en¬ 
dorser, or the drawer, or against the other debtor on the check for 
six months after the period within which the check has to be pre¬ 
sented for payment. The period of effectiveness of the claim of 
one endorser against another endorser is six months from the day 

1 Japanese Civil Code, Article 167. 

2 Japanese Commercial Code, Article 522. 

3 Refer to the handling of discount transactions. 

4 Japanese Laws on Bills, Article 70. 


53 



on which he receives the check or from the day on which he is sued 
by another endorser for the check. 

2. Interruption of prescribed period of time limits 

In order to prevent a claim from becoming nullified due to Statu¬ 
tory limitations, the creditor has to take proper steps to protect 
his claim. The procedure is called JIKO CHUDAN NO TETSU- 
ZUKI (or, steps to interrupt the prescribed time limit). The 
Japanese Civil Code provides the following procedure which 
can be followed by the creditor or debtor in order to make the inter¬ 
ruption effective: 

1. Payment is requested by the creditor to the debtor 

through court action or by methods other than court 
action. 

2. The attachment (SASHI OSAE), the provisional attach¬ 

ment (KARI SASHI OSAE) or the provisional disposi¬ 
tion (KARI SHOBUN) of the debtor’s property by the 
creditor. 

3. The acknowledgment of the debt to the creditor by the 

debtor. 

a. Interruption of prescribed time limit by court action. The 
creditor may bring suit against the debtor for payment of the debt 
or he may apply to the courts for a payment order to be issued to 
the debtor. If the court issues a payment order to the debtor and 
the debtor does not register a protest against the order within 
two weeks from the date the order has been sent, the creditor can 
apply for provisional foreclosure 1 against the property of the 
debtor. If, however, the creditor fails to make the application 
within thirty days from the date he is entitled to make the applica¬ 
tion, the court order of payment to the debtor will be nullified, 2 3 
and the interruption of the prescribed time limit will not take place. 8 

The creditor may also request the court to issue an order to the 
debtor to appear in court for the purpose of obtaining an amicable 
settlement of the debt. 4 If and when the debtor does not appear in 
court, the creditor will have to bring suit against the debtor within 
one month. Otherwise, the interruption of the prescribed time 
limit initiated by the creditor’s request for settlement in court will 
not become effective. 5 

The creditor and the debtor may voluntarily appear in court to 
argue their case. 6 * However, if no agreement can be reached be- 

1 Japanese Civil Code of Legal Procedure, Article 438. 

2 Japanese Civil Code of Legal Procedure, Article 439. 

3 Japanese Civil Code, Article 150. 

Japanese Civil Code of Legal Procedure, Article 432. 

4 Japanese Civil Code of Legal Procedure, Article 356, paragraph 1. 

5 Japanese Civil Code, Article 151. 

Japanese Civil Code of Legal Procedure, Article 356 and 354. 

6 Japanese Civil Code of Legal Procedure, Article 354. 

54 



- 


tween the parties, the creditor will have to bring a suit against 
the debtor within one month from the day they cease the argument. 
Otherwise, the interruption of the statutory limitation which was 
caused by the voluntary appearance of both parties to argue the 
case will cease to be effective. The creditor may also submit his 
claim to the bankruptcy administrator when the debtor is bank¬ 
rupt. The claim must be submitted within two weeks to four 
months 1 after the administrator has ordered all creditors to submit 
the request. The interruption of the period of effectiveness then 
establishes a new period when the result of the bankruptcy adminis¬ 
tration is made public. When a decision has been made to conduct 
an auction sale on the debtor’s real estate properties, resulting 
from the creditor’s application based on the auction law, the inter¬ 
ruption of the prescribed period will become effective. 2 The debtor 
must be notified of the decision and the new period of prescribed 
time limit will start when the auction is over. 

b. Interruption of period prescribed by other than court action. 
The creditor may request payment from the debtor by Contents Cer¬ 
tified mail (NAIYO SHOMEI YUBIN), by the bailiff (SHITTAT- 
SURI) or by any other method of notification. In such case, the 
interruption of the period prescribed will become effective. How¬ 
ever, the Japanese law requires that in the above case, the creditor 
is required to take legal action to collect the debt within six months 
from the date of notification. Otherwise, the interruption will 
not become effective. When a creditor is requested to notify the 
heir of the debtor of the claim and receives a limited recognition 
(GENTEI SHONIN) of the claim, the interruption of the period 
prescribed will become effective. The heir will be held responsible 
for the claim to the extent of his inheritance. The claim which is 
over and above the amount inherited is regarded as a moral obliga¬ 
tion of the heir rather than a debt from the legal standpoint. 

c. Interruption of prescribed time limit by attachment, provis¬ 
ional attachment, and provisional disposition. Attachment is an 
act of foreclosure after a court ruling. The provisional attach¬ 
ment and provisional disposition are preparatory steps to the fore¬ 
closure. These acts will make the interruption of the prescribed 
period effective. 

d. Interruption of prescribed time limit by acknowledgment of 
the debtor. To obtain an acknowledgment of the debt by the debtor 
in order to make effective the interruption of the prescribed time 
limit, the creditor is not required to present the bill or note to the 


1 Japanese Bankruptcy Law #70, 1926 Amendment, Article 142, paragraph 1. 

2 Japanese Supreme Court Rule, 20 April 1933. 


55 



9 


debtor. However, when the creditor requests payment from the 
debtor, the creditor is required to present the bill or the note. 

When the debtor acknowledges his debt, the prescribed period of 
time limit for the claim is interrupted, and the period starts anew 
from the day the debtor acknowledges the debt. This rule is also 
applied to the guarantor of the obligation. When the debtor pays 
a portion of the debt or the interest thereon, it will constitute the 
interruption of the period. If a debtor acknowledges his debt 
after the expiration of the prescribed time limit, the acknowledg¬ 
ment is regarded as valid and the claim of the creditor becomes 
legal. The legality of the claim is based on the assumption that 
the debtor acknowledged the debt with the full knowledge of the 
legal provision relating to the cancelation of the claim by the ex¬ 
piration of the time limit. When a promissory note is lost and the 
creditor applies for a court ruling to ascertain the validity of his 
claim on the lost note, the claim is regarded as valid while the case 
is pending. If the debtor acknowledges, the debt while the court 
ruling is pending, the interruption of the prescribed time limit 
becomes effective. If the court rules against the creditor, the 
creditor will lose his claim on the note, yet he may still regain his 
claim on the basis of the commercial law, providing that the creditor 
is able to prove his commercial claim (SHOJI SAIKEN). 


56 


VII. OPERATING DEPARTMENT—EXCHANGE DIVISION 


The Japanese word KAWASE or Exchange is a very common 
commercial term used in SOKIN or remittance, KAWASE SOBA 
or exchange rate, KAWASE TEGATA or bill of exchange or KA¬ 
WASE JIMU meaning exchange operation, etc. The original 
meaning of KAWASE in Japan was “The methods of settlement 
of claims or debts between distant cities without the physical move¬ 
ment of cash.” In short it implies the settlement of claims by 
bookkeeping methods rather than by actual movement of cash. 
The Exchange Division in a bank performs the middleman’s func¬ 
tion in the settlement of claims between the parties involved in 
distant cities or between two different countries. Thus the ex¬ 
change operation is divided into Domestic Exchange (NAIKOKU 
KAWASE) and Foreign Exchange (GAIKOKU KAWASE). In 
order to carry out the exchange operation, banks in different cities 
or countries have a prearranged procedure, usually the signing 
of a contract between the banks, known as the KAWASE TORI- 
HIKI YAKUJO. The signatory banks call each other “The Corre¬ 
sponding Bank” or KAWASE TORIHIKI YAKUJO SAKI. There 
are two types of contract: namely, the Mutual Transaction Agree¬ 
ment (SOHO TORIHIKI YAKUJO) and the Unilateral Agreement 
(IPPO TORIHIKI YAKUJO). The former implies that each 
contracting bank has an account in the other bank and records 
the transaction according to the origin of the transaction. The 
latter type of contract implies that only one of the banks has an 
account in the other bank and all transactions between the two 
are recorded in that account. Additional agreements known as 
TSUIKA YAKUJO, relating to such matters as Overdraft Agree¬ 
ment (KASHIKOSHI YAKUJO), the Collateral Agreement 
(TAMPO YAKUJO), the Agreement to Settle the Balance through 
their Main Office (KOTSU-KEISAN YAKUJO) and the Cable or 
Telegraphic Transfer Agreement (DENSHIN KAWASE YAKU¬ 
JO), etc., are made whenever necessary. 

# 

A. DOMESTIC EXCHANGE 

The functions involved in domestic exchange can be classified 
into three categories: namely, the collection operation, the han¬ 
dling of drafts, and the handling of correspondents’ accounts. The 
collection operation mentioned here is often handled by an inde- 


57 


pendent Collection Division and a separate chapter has been de¬ 
voted to the discussion of this operation. 1 There are three different 
methods commonly used in sending money from one individual to 
another; namely, by bank draft, by current account transfer and 
by telegram or cable. 

1. Bank Draft 

The SOKIN KOGITTE (Remittance Cheque) or the Bank Draft 
is subject to the regulation of Japanese Laws on Cheques (KO¬ 
GITTE HO) 2 and all legal provisions concerning cheques are also 
applied to bank drafts. There are two types of draft applications 
(SOKIN TORIKUMI IRAISHO) : one is the ordinary application 
blank and the other provides for the draft application and for the 
receipt dempyo. When a bank issues a draft, it will be recorded on 
the Register of Drafts (SOKIN KINYU-CHO) 3 and on the Ledger 
of Correspondents’ Account (TATEN KANJO MOTOCHO) 4 or 
on the Ledger of Inter-Office Account (HON-SHI-TEN KANJO 
MOTOCHO). 

The Ledger of Correspondents’ Account is divided into Our Ac¬ 
count (TOHO KUCHI) and Your Account (KIHO KUCHI) de¬ 
pending upon which bank issues the draft. For example, if the 
amount involved in the draft is 1,000. yen, the issuing bank records 
the amount on the CREDIT side of the Our Account column on the 
Ledger of the Correspondents’ Account. If the draft is drawn 
against the main or branch office of the drawing bank, the amount 
will be recorded on the Ledger of Inter-Office Account. Generally 
speaking, no classification as to Our Account or Your Account is 
made in this book. The drawer bank then notifies the drawee 
bank of the draft issue, except in cases when this notice is pur¬ 
posely omitted, such as when the amount of draft is below 100. yen. 
This process of notification is called SOKIN TORIKUMI ANNAI. 
Two types of forms are used in this notice: one is called the Advice 
of Draft Issued (SOKIN TORIKUMI ANNAI) and the other the 
Accounts Report (SHO-KANJO HOKOKU). 5 

There are cases in which the applicant of a draft requests the 
drawer bank to refund the draft. This is called KUMIMOTOSHI. 
In such a case, the drawer bank will make certain that the party 
who makes the request is the one who originally applied for the 
draft. If the draft is lost, the drawer bank must be notified in a 
proper form, known as SOKIN KOGITTE FUNSHITSU TODOKE, 
and the draft may be reissued after all precautionary steps have 

1 See chapter VIII. 

2 Refer to the discussion on “Explanation of Current Deposit and Cheque.” 

3 See item 48, appendix 3. 

4 See item 49, appendix 3. 

5 Refer to the discussion on Bills for Collection Payable Elsewhere, chapter VIII. 


58 



been taken. These include advertisement in the local papers in 
the cities of the drawer and drawee’s bank, and a certain waiting 
period. 

When the drawee bank receives the draft issue notice, it is re¬ 
corded on the Register of Draft Payments (SHIHARAI SOKIN 
KINYU CHO). 1 When the draft is presented for payment, the 
drawee bank compares the signature and seal of representative of 
the drawer bank appearing on the draft with the signature and 
seal in their files, and looks into the Register of Draft Payments 
to see whether the draft issue notice had been received. If the 
notice has already been received and recorded, the date of pay¬ 
ment will be recorded on the same line. If not, the details of the 
draft will be recorded on the book with the notation “Notice is 
not yet received (MI-ANNAI)”. When the drawee bank pays 
the draft, the draft may be used to take the place of the cash pay¬ 
ment dempyo, and the payment will be recorded on the debit side 
of YOUR ACCOUNT on the Ledger of Correspondents’ Account. 
If the drawee bank is the main or branch office of the drawer bank, 
the amount will be debited in the Ledger of Inter-Office Account 
(HON-SHI-TEN KANJO MOTOCHO). After the transaction 
has been recorded, the drawer bank is notified of the payment. An 
Account Report (SHO-KANJO HOKOKU) is sent, together with 
the amount paid recorded on the debit side of the report. 

2. Current account transfer (TOZA FURIKOMI) 2 

If A in Tokyo, who has business with the Daiichi Bank, wishes 
to send 1,000. yen to B in Osaka, who has a current account with 
the Yasuda Bank in Osaka, A submits an application for Current 
Account Transfer (TOZA FURIKOMI IRAISHO) to the Daiichi 
Bank. The Daiichi Bank in turn issues to A a Duplicate Advice 
on Receipt of Current Account (TOZA KANJO UKEIRE FUKU 
HOKOKU SHO), and sends an Advice on Receipt of Current Ac¬ 
count (TOZA KANJO UKEIRE HOKOKU SHO) to the Yasuda 
Bank in Osaka. At the same time, A sends the Duplicate Advice 
on Receipt of Current Account to B in Osaka and B presents the 
advice to the Yasuda Bank to have the money credited to his current 
account. The Daiichi Bank then records the transaction on the 
Register of Current Account Transfer Dispatched (SHIMUKE 
TOZA FURIKOMI KINYU-CHO) 3 and on the Ledger of Corre¬ 
spondents’ Account. The Yasuda Bank in Osaka, upon the receipt 
of the advice from the Daiichi Bank in Tokyo, records it on the 

1 See item 50, appendix 3. 

2 This method of FURIKOMI (Transfer or Payment) is sometimes called TSUKIKAE or 
TSUKIKOMI. The Yokohama Specie Bank calls it TSUKIKOMI, indicating the interoffice 
transaction of this nature. 

3 See item 51, appendix 3. 


59 



Register of Current Transfer Received (HI-SHIMUKE TOZA 
FURIKOMI KINYU-CHO). 1 When the amount is deposited into 
B’s current account, the transaction is recorded on the Ledger of 
Correspondents’ Account and the bank sends the notice of pay¬ 
ment to the Daiichi Bank in Tokyo. 

3. Telegraphic transfer (DENSHIN SOKIN) 

No remittance cheque is involved in this transaction. Instead, 
a Telegraphic Transfer Receipt is given to the applicant and the 
drawer bank informs the drawee bank of the transaction in a 
coded telegram. When the Telegraphic Transfer Receipt is issued 
to the applicant, the drawer bank of the receipt records the trans¬ 
action under the drawee bank’s name on the Register of T. T. 
(Telegraphic Transfer) Dispatched (SHIMUKE DENSHIN SO¬ 
KIN KINYU-CHO) 2 , and when the payment notice of the T. T. is 
received from the payer bank, the payment date is recorded on the 
book. If the payer bank is a correspondent, the transaction is re¬ 
corded on the Ledger of Correspondents’ Account in similar manner 
as when an ordinary draft is issued. If the T. T. is issued against 
its main or branch bank, it is recorded on the Ledger of Inter- 
Office Account. The issuing bank then sends the T. T. advice to the 
bank against whom it is issued. 

The bank paying on the T. T., on the other hand, decodes the 
telegram at the manager’s desk and records it on the Register of 
T. T. Payable (HI-SHIMUKE DENSHIN SOKIN KINYU-CHO) 3 . 
In order to receive the money, the payee of the T. T. must present 
the telegraphic advice which he has received from the sender and 
a Receipt of Telegraphic Transfer (DENSHIN SOKIN UKETORI 
SHO). For this receipt a co-signature is often required to assure 
the paying bank that he is the rightful receiver. When the money 
is paid by the bank, a cash payment dempyo is prepared, or in 
some cases, the receipts are used in place of a dempyo. The pay¬ 
ment is then recorded on the Ledger of T. T. Payment as in the 
case of payment of an ordinary draft. 

All the procedures relating to the Telegraphic Current Account 
Transfer (DENSHIN TOZA FURIKOMI) are similar to that of 
the ordinary current account transfer except that in this case the 
telegraphic code is used instead of ordinary mail. For example, if 
the Yasuda Bank in Osaka deposits 1,000. yen in B’s Current Ac¬ 
count according to the coded telegram received from the Daiichi 
Bank in Tokyo, the Yasuda Bank makes the following entry and 
the amount is DEBITED into the YOUR ACCOUNT column of 


1 See item 52, appendix 3. 

2 See item 53, appendix 3. 

3 See item 54, appendix 3. 


60 



the Daiichi Bank account in the Ledger of Correspondents’ Ac¬ 
counts : 


TRANSFER DEMPYO 

Debit Credit 

B’s Current Account-_ 1,000. yen Daiichi Bank_1,000. yen 

4. Handling of correspondents’ accounts 

As it has been stated in a previous paragraph, the correspon¬ 
dents’ accounts are divided into OUR ACCOUNT (TOHO KUCHI) 
and YOUR ACCOUNT (KIHO KUCHI) in case the exchange 
operation contract is based on the mutual transaction* agreement 
(SOHO TORIHIKI YAKUJO). The correspondents’ accounts 
shown on the balance sheet, such as the Due from Correspondents’ 
Account (TATEN-E KASHI) and Due to Correspondents’ Account 
(TATEN YORI KARI) can be analyzed and presented in a simple 
chart form as follows: 

Credit Side 
Borrowed from 

Debit Side 

Deposited with 

Credit Side 
Deposits from 

Debit Side 
Loaned to 

As is shown in the above chart, the division of all correspondents’ 
accounts into OUR and YOUR accounts creates no simple task in 
the maintenance of exchange balances in a most profitable manner 
among the many corresponding banks. Let us assume that Bank 
A has a deposit of 3,000. yen with Bank B and it also has borrowed 
3,000. yen from Bank C. In this case, Bank A pays a higher rate 
of interest to Bank C on what it borrowed than on what it receives 
as interest from deposit with Bank B. Consequently, it will be 
profitable for Bank A to cancel the 3,000. yen borrowed from 
Bank C against its deposit with Bank B. This process of adjust¬ 
ing the differences is called KAWASE-JIRI NO SOJU. There 
are three different methods commonly used for this operation: 
namely, the Transfer of Exchange Balance (KAWASE-JIRI TSU- 
KIKAE) ; the Mutual Transfer and the Reverse Mutual Transfer 
(SOHO TSUKIKAE OYOBI GYAKU SOHO TSUKIKAE); and 
the Payment of Exchange Balance (KAWASE-JIRI FURIKOMI) 

1 Your Account (KIHO KUCHI) is sometimes called Their Account (SEMPO KUCHI). 


OUR 

ACCOUNT 


YOUR 
ACCOUNT i 


(KASHI-KATA) 

(KARI-KOSHI) 

(KARI-KATA) 

(AZUKE) 

(KASHI-KATA) 

(AZUKARI) 

(KARI-KATA) 

(KASHI-KOSHI) 


> Due to 

correspondents 


Due from 

correspondents 


» 


61 









and Receiving or Recalling of Exchange Balance (KAWASE-JIRI 
UKEIRE or KAWASE-JIRI MOTOSHIIRE). 

a. Transfer of exchange balances (KAWASE-JIRI TSUKI- 
KAE). Three corresponding banks are always involved in this 
transfer operation. The bank which originates the transfer is 
called TSUKIKAE GINKO or TSUKIKAE ITAKU GINKO; the 
bank who pays the money is called HI-TSUKIKAE JUDAKU 
GINKO or HI-TSUKIKAE KARIKATA GINKO; and the bank 
who receives the money is called HI-TSUKIKAE GINKO or HI- 
TSUKIKAE KASHIKATA GINKO. Citing the example given in 
the previous paragraph, Bank A will send a transfer request of 
OUR ACCOUNT to Bank B and will notify the same to Bank C. 
Bank B notifies Banks A and C of the transfer of deposit and re¬ 
cords the transaction in YOUR ACCOUNT column (account of 
Banks A and C) in the Ledger of Correspondents’ Accounts. The 
Bank C, on the other hand, notifies Bank A of the receipt of money 
in YOUR ACCOUNT from Bank B and also notifies Bank B of the 
deposit of money in OUR ACCOUNT. The receipt of 3,000. yen 
from Bank A, which is in the form of deposit with Bank B, is 
handled by Bank C as YOUR ACCOUNT, since the transfer opera¬ 
tion originated from Bank A. On the other hand, the newly cre¬ 
ated deposit of 3,000. yen with Bank B is handled as OUR AC¬ 
COUNT by Bank C even though the deposit did not result from 
the initiative of Bank C. The reason for this method of recording 
is due to the fact that if Bank C handles the deposit with Bank B 
in YOUR ACCOUNT, which is OUR ACCOUNT from the stand¬ 
point of Bank B, it will no longer be a deposit, but will be a loan 
to Bank B and Bank B will have to pay a high interest rate on 
the money. To eliminate this type of unjustified burden upon 
Bank B, the corresponding banks are mutually agreed to handle 
the exchange transfer transactions as stated above. The follow¬ 
ing dempyos will be made by each bank to record the transactions: 
By Bank A : 


Debit 

Bank B, Our Account 1 


Credit 

Bank C, Our Account 


3,000. yen 


3,000. yen 


By Bank B : 


Debit 

Bank C, Your Account 


Credit 

Bank A, Your Account 


3,000. yen 


3,000. yen 


By Bank C : 


Debit 

Bank A, Your Account 


Credit 

Bank B, Our Account 


3,000. yen 


3,000. yen 


1 Refer to the discussion on Transfer Dempyo, chapter II. 


62 



« 


Another point to be mentioned in the above example is that the 
date on which the interest calculation is to start is usually deter¬ 
mined by Bank A after an allowance has been made on the num¬ 
ber of days required for the mail service between the parties and 
the date is to be approved by other banks concerned in the trans¬ 
action. If the distance between the banks is too great and the 
number of days required for mail service is undeterminable, the 
interest starting day is left to be determined by corresponding 
banks. In case of the above example, the interest starting day will 
be the day on which Banks B and C make records of the transac¬ 
tions on their books. 

• 

b. Mutual transfer and reverse mutual transfer (SOHO TSUKI- 
KAE OYOBI GYAKU SOHO TSUKIKAE). Mutual transfer im¬ 
plies the cancellation of the Deposit With (debit) balance in OUR 
ACCOUNT and the Deposit From (credit) balance in YOUR AC¬ 
COUNT on the Ledger of Correspondents’ Accounts. The reverse 
mutual transfer, on the other hand, refers to cancellation of the 
Borrowed From (credit) balance in OUR ACCOUNT and the 
Loaned To (debit) balance in YOUR ACCOUNT on the Ledger of 
Correspondents’ Accounts. This method of cancellation is natu¬ 
rally subject to approval of the corresponding bank. 

As to the former method, if Bank A has a debit balance (Deposit 
With) of 3,000. yen with Bank B in OUR ACCOUNT and a credit 
balance (Deposit From) of 5,000. yen in YOUR ACCOUNT in its 
Ledger of Correspondents’ Account, Bank A makes the following 
dempyo to cancel the Deposit With balance against the Deposit 
From balance of Bank B: 

Debit Credit 

Bank B, Our Account Bank B, Your Account 

3,000. yen 3,000. yen 

Bank A sends the Accounts Report (SHO-KANJO HOKOKU 
SHO) to Bank B, crediting the amount in OUR ACCOUNT and 
debiting the same in YOUR ACCOUNT. This transaction is, of 
course, subject to the approval of Bank B. Let us further assume 
that Bank A has a deposit with Bank C amounting to 1,000. yen 
and wishes to recall the deposit from it. In such a case, Bank A 
may also transfer the deposit to Bank B and reduce the amount 
of Deposit From the Bank B to 1,000. yen. 

As to the reverse mutual transfer (GYAKU SOHO TSUKIKAE), 
let us assume, for example, the Daiichi Bank in Tokyo has sent a 
current account transfer request of 1,000. yen to the Yasuda Bank 
in Osaka and the Yasuda Bank has paid the amount to Mitsubishi 
& Company. The Yasuda Bank account in the Ledger of Corres¬ 
pondents’ Accounts in the Daiichi Bank will show a credit balance 


63 


(Borrowed From) of 1,000. yen in OUR ACCOUNT. Let us fur¬ 
ther assume that the Yasuda Bank in Osaka has drawn a draft of 
1,000. yen against the Daiichi Bank in Tokyo and the Daiichi Bank 
has paid the draft. This will create a debit balance (Loaned To) 
of 1,000. yen in the YOUR ACCOUNT side of the Yasuda Bank 
account in the Ledger of Correspondents’ Accounts of the Daiichi 
' Bank. These two balances can be cancelled against each other on 
the initiative of any one of the banks. If the Daiichi Bank under¬ 
takes to cancel the balance, it makes out the following dempyo 
and sends the Accounts Report to the Yasuda Bank, debiting the 
amount in OUR ACCOUNT and crediting the same in YOUR AC¬ 
COUNT : 


Credit 

Yasuda Bank, Our Account 

1,000. yen 


Debit 

Yasuda Bank, Your Account 

1,000. yen 


c. Payment of exchange balances (KAWASE-JIRI FURIKOMI) 
and receiving or recalling of exchange balances (KAWASE-JIRI 
UKEIRE or KAWASE-JIRI MOTOSHIIRE). When a bank faces 
the necessity of making payment on an exchange balance at its 
own initiative, and the various methods described in the previous 
paragraphs are not suitable, the bank makes the payment of ex¬ 
change balance directly to the bank concerned or through a third 
bank. Let us assume that the Daiichi Bank in Tokyo is obliged to 
issue a sizeable amount of bank drafts against the Yasuda Bank 
in Osaka and the two banks have no overdraft agreement between 
them. The Daiichi Bank will then have to find a means of creating 
a deposit balance with the Yasuda Bank in Osaka before the draft 
is presented for payment to the Yasuda Bank in Osaka. In such 
a case, the Daiichi Bank may remit the amount to one of the Yasuda 
Bank’s corresponding banks in Tokyo or to the branch office of 
the Yasuda Bank in Tokyo to transmit the money to the Yasuda 
Bank in Osaka. 

Supposing the Daiichi Bank decides to pay the amount to the 
Sumitomo Bank in Tokyo to be transmitted to the Yasuda Bank 
in Osaka, the Daiichi Bank will then notify the Sumitomo Bank 
by telephone. The Sumitomo Bank will prepare a Receipt of Ex¬ 
change Balance (KAWASE-JIRI FURIKOMI RYOSHUSHO) and 
will collect the money through the Clearing House. The Daiichi 
Bank will then prepare a payment dempyo and an Exchange Bal¬ 
ance Payment Report (KAWASE-JIRI FURIKOMI HOKOKU 
SHO), and make a record of the transaction in the Yasuda Bank 
Account (Our Account Column) on the Ledger of Correspondents’ 
Accounts. The Exchange Balance Payment Report will be sent to 
the Yasuda Bank in Osaka. On the other hand, the Daiichi Bank 


64 


may send a messenger directly to the Sumitomo Bank to make the 
payment or it may deposit the money with the Bank of Japan in 
favor of the Yasuda Bank in Osaka. 

The recalling of the Exchange Balance (KAWASE-JIR1 MOTO- 
SHIIRE) implies the making of a request to a corresponding bank 
to return the Deposit With balance in OUR ACCOUNT or the 
Loaned To balance in YOUR ACCOUNT on the Ledger of Corres¬ 
pondents’ Accounts of the requesting bank. When the requesting 
bank finds that the Deposit With or the Loaned To balance is idle 
and thinks that it could be used more profitably at home or else¬ 
where, the bank may request the remittance through ordinary mail 
or telegram. The requesting bank may also issue a cheque against 
the corresponding bank and send it to a third bank located in the 
same city where the corresponding bank is. The third bank then 
collects the cheque through the Clearing House or by direct presen¬ 
tation to the corresponding bank for payment. 

The Exchange Division prepares the balance sheet (TATEN 
KAN JO ZANTAKA HYO) 1 every day showing the balances in 
OUR ACCOUNT and YOUR ACCOUNT of the correspondents’ 
account. This balance sheet will provide a clear view of its ex¬ 
change balance with the corresponding banks and will enable the 
Exchange Division to manipulate the correspondents’ accounts in 
a profitable manner. The Exchange Division also prepares the 
Accounts Sheets (KANJO SHO) of all correspondents’ accounts 
and sends them to their correspondents to ascertain the balance 
and the interest calculations. It is a general custom among Jap¬ 
anese banks to have the accounts sheets representing the YOUR 
ACCOUNT in the Ledger of Correspondents’ Accounts prepared 
by the Exchange Division and the sheets relating to the OUR 
ACCOUNT in the Ledger of Correspondents’ Accounts prepared 
by the corresponding banks. The accounts sheets are generally 
exchanged between the corresponding banks once a month and 
replies are sent by each bank acknowledging the accuracy of the 
balance and the interest calculation contained in the sheet. The 
interest settlement between corresponding banks is usually a month 
earlier than the usual bank fiscal year, that is, at the end of May 
and November. 

5. Inter-office accounts (HON-SHI-TEN KANJO) 

The discussion on inter-office accounting is divided into two parts: 
(1) the mutual accounting method (KOTSU KEISAN HO) in re¬ 
lation to a corresponding bank; and (2) the accounting methods 
between main and branch offices and between branch offices. 


1 See item 55, appendix 3. 


65 



a. Inter-office mutual accounting method in relation to corres¬ 
pondents. The mutual accounting method differs from the Inde¬ 
pendent Accounting Method (TANDOKU KEISAN HO), although 
the procedure for handling an exchange transaction is similar. In 
the case of independent accounting, the method of handling the 
exchange business as well as its accounting method are exactly 
the same as has been explained in the correspondents’ accounts. 
In the case of the mutual accounting method, however, the book¬ 
keeping of the exchange transaction as well as the settlement of 
the exchange balance are done by and through the main office of 
one or all of the banks involved in the exchange transaction. 

Supposing Bank AA is engaged in the exchange transaction 
with Bank B and the account between them is to be settled through 
Bank A which is the main office of Bank AA. 1 In such a case, 
Bank AA is called KOTSU TEN and the Bank A is called KESSAN 
TEN. The method of bookkeeping in the above case, assuming 
the Bank AA is asked to issue a bank draft against Bank B, is 
that Bank AA prepares the draft and makes a record of it on the 
Register of Drafts. Bank AA, however, does not keep the Ledger 
of Correspondents’ Accounts. Instead the transaction is recorded 
on the credit side of the Ledger of Inter-Office Accounts (HON- 
SHI-TEN KANJO MOTOCHO) and the draft advice is sent to its 
main office, as well as to Bank B. When Bank AA receives the 
draft payment advice from the Bank B, the date of the payment 
is recorded on the Register of Drafts and the notice of payment of 
the draft is sent to the main office. 

If, on the other hand, Bank AA receives a draft notice from 
Bank B, the notice is recorded on the Register of Draft Payment. 
When Bank AA pays the draft, it sends the draft payment advice 
to Bank B as well as to its main office, the Bank A, and the trans¬ 
action is recorded on the debit side of the Ledger of Inter-Office 
Accounts. The bookkeeping methods of the Telegraphic Transfer, 
the Current Account Transfer, and the Telegraphic Current Ac¬ 
count Transfer is handled in similar manner to that explained here¬ 
tofore. 

b. Method of handling the exchange transaction by Bank A 
(KESSAN TEN). When Bank A receives a draft notice from AA 
branch for 1,000. yen, it makes out the following transfer dempyo: 


Debit Credit 

Bank B, Our Account AA Branch__ _ _. 1,000. yen 

1,000. yen 


1 In some cases Bank AA may trade with Bank BB which is assumed to be the branch office of 
Bank B and the settlement of accounts between the Bank AA and the Bank BB is made between 
Bank A and Bank B. 


66 




Bank A then records the transaction on the Debit side of the AA 
branch in the Ledger of Inter-Office Account and on the Credit side 
of the OUR ACCOUNT of Bank B on the Ledger of Correspondents’ 
Accounts. When Bank A receives the draft payment notice from 
the A A branch, amounting to 1,000. yen and drawn by Bank B, 
it makes out the following dempyo: 


Debit Credit 

AA Branch _•_1,000. yen Bank B, Your Account 

1,000. yen 


The transaction will then be recorded on the Credit side of the AA 
branch account on the Ledger of Inter-Office Accounts and on the 
Debit side of YOUR ACCOUNT of the Bank B on the Ledger of 
Correspondents’ Accounts. 

c. Inter-office-accounting methods. Inter-office accounting in 
this discussion means the methods of bookkeeping used in trans¬ 
actions arising between the main office and the branch offices and 
between the branch offices. The inter-office transaction naturally 
includes not only the exchange operations between them, but also 
the numerous transactions arising from administrative functions. 
This situation may give an impression that inter-office accounting 
is much more complicated than the accounting involving exchange 
transactions between correspondents. However, one of the dis¬ 
tinct differences between inter-office accounting and accounting 
between correspondents is that in the latter case all accounts are 
divided into the OUR ACCOUNT and YOUR ACCOUNT as ex¬ 
plained in previous paragraphs, while in the case of the former, 
this distinction is not made. This difference simplifies the method 
of inter-office accounting as compared with the method used be¬ 
tween correspondents. 

There are two different methods used in inter-office accounting, 
the Independent Accounting Method or Direct Accounting Method 
(DOKURITSU KANJO SEIDO or CHOKUSETSU SEIRI HO) 
and the Main Office Centralized System or Indirect Accounting 
Method (HON-TEN SHUCHU SEI or KANSETSU SEIRI HO). 
The former method of accounting is exactly the same as that used 
in handling transactions between correspondents, except that no 
distinction as to OUR ACCOUNT and YOUR ACCOUNT is made. 
Each branch office maintains the accounts of the main office as 
well as those of other branch offices and records the transactions 
with them as it would when dealing with other correspondents. 
This method of recording the inter-office transaction, however, is 
not popular in Japan at the present, due to the extensive develop¬ 
ment of the branch banking system and the. merging of many 
banks in recent years. 


67 



(1) Indirect accounting method or the main office centered 
accounting method . As its name implies, no two branch offices 
have independent mutual debit or credit relationships. All such 
operations are carried out through the main office. To explain 
more specifically, assume that Bank A in Tokyo has an A-l branch 
in Osaka and an A-2 branch in Yokohama. Let us also assume 
that the A-l branch issues a draft amounting to 1,000. yen against 
the A-2 branch in Yokohama. Under the indirect accounting 
method, the records of A-l branch will show that it borrowed 
from its main office, the Bank A, rather than from the A-2 branch. 
When the A-2 branch pays the draft, its records show that it 
loaned the amount to its main office, rather than to the A-l branch 
office. 

All transactions between branch offices are reported to the main 
office. Citing the example given above, the A-l branch reports the 
issue of draft to the A-2 branch and when the A-2 branch pays 
the draft, it notifies its main office. On the other hand, the A-l 
branch and the A-2 branch may notify each other as well as the 
main office of the issue and the payment of the draft. 

The notice to the main office may be sent either to the Operat¬ 
ing Division of the main office or to a Non-Operating Division, 
such as the Accounting Department in the main office. This 
difference in the addressing of the reports or the notices will cre¬ 
ate a difference in the methods of bookkeeping. If all the branch 
offices send the notice of the exchange transaction to the Operat¬ 
ing Division in the main office, the Nagoya branch of the Mitsui 
Bank, for instance, issues draft #100, amounting to 3,000. yen 
against its Osaka Branch on 3 September, Showa 10, the Nagoya 
Branch will make a cash receipt dempyo in the account of main 
office amounting to 3,000. yen and will send draft advices in a 
form of Main Office Account Report (HONTEN KAN JO HO- 
KOKU-SHO) to Osaka Branch and to the main office recording 
the amount on the credit side of both reports. It also credits the 
amount in the Osaka branch account in the Ledger of Main Office 
Account. If the Osaka branch pays the draft on 4 September, it 
prepares a cash payment dempyo in the main office account rather 
than on that of the Nagoya branch. The Osaka branch will then 
prepare payment reports in the form of main office account reports, 
sending one to the main office and another to the Nagoya branch, 
debiting the amount on both reports. The transaction will be 
recorded in the debit side of the Nagoya branch on the Ledger 
of Main Office Account. 

(2) Handling of a transaction in the Operating Department in 
the main office . The Operating Department in the main office of 

68 


the Mitsui Bank prepares the following dempyo when it receives 
the draft advice from its Nagoya branch: 

Debit • Credit 

Osaka Branch-1,000. yen Nagoya Branch_1,000. yen 

The transaction is then recorded on the Ledger of Branch Office 
Accounts, debiting the amount to the Nagoya branch account and 
crediting it to the Osaka branch account. When the main office 
receives the payment report from the Osaka branch, it is checked 
against the Ledger and the date of the payment will be recorded 
in it. 

(B) Handling of transactions in the Nonoperating Department 
of the main office. The Nonoperating Department in this case 
usually means the Accounting Department in the main office. From 
the standpoint of accounting for the bank as a whole, the Account¬ 
ing Department regards the Operating Department in the main 
office as one of its branch offices, since it performs similar operat¬ 
ing functions. The method of recording used by the Accounting 
Department for inter-office transactions under this system is 
simpler than the method explained in the previous paragraph, 
since this department does not maintain the Ledger of Branch 
Office Accounts. This eliminates the maintenance of branch office 
accounts in the main office. The various branch offices, on the 
other hand, do not maintain the Ledger of the Main Office, thus 
eliminating all branch office accounts in the ledger. 

There are two methods of recording inter-office transactions 
under this system: one is to record all transactions into debit and 
credit accounts, and the other is to classify all transactions into 
Sent To (SHIMUKE) and Received From (HI-SHIMUKE) ac¬ 
counts. 1 According to the latter method all branch offices as well 
as the accounting department in the main office have only two 
ledgers: the Ledger of Accounts Sent To Accounting Department 
(SHIMUKE-KUCHI KEIRI-BU KANJO MOTOCHO) and the 
Ledger of Accounts Received from the Accounting Department 
(HI-SHIMUKE-KUCHI KEIRI-BU KANJO MOTOCHO). The 
advantage of this method of recording lies in the tact that the 


1 Sent To (SHIMUKE) is equivalent to OUR ACCOUNT (TOHO KUCHI) and Received From 
(HI-SHIMUKE) is equivalent to YOUR ACCOUNT (KIHO KUCHI or SEMPO KUCHI). This 
classification in the inter-office transaction is, however, different from the classification of OUR 
ACCOUNT and YOUR ACCOUNT in the transactions between correspondents. In the case of 
the former, the classification is based upon the branch office which creates the debit or credit 
account on the transaction, while in the latter case, it is based upon the bank which initiates the 
transaction. For example, when Bank A col!e«ts a bill for Bank B, Bank A regards the trans¬ 
action as YOUR ACCOUNT as the transaction is initiated by Bank B. In the case of an inter¬ 
office transaction, however, assuming that Banks A and B are the branch offices of the same 
bank, Branch A in the above case will regard the transaction as OUR ACCOUNT or Sent To, 
as Branch A creates the account when the bill is collected. Another difference is that the balance 
in the Received From Ledger in the inter-office transaction is transferred to the Sent To Ledger 
at the end of each business day, thus cancelling the ledger balance, while this cancellation does 
not take place on YOUR or OUR accounts in the ledger of correspondents’ accounts. 


69 




movement of funds from one branch to another can be traced 
easily. Therefore, many banks in Japan are using this method. 

When Branch A issues a draft against Branch B, Branch A re¬ 
gards it as though it had issued the draft against the accounting 
department of the main office and the transaction is recorded on 
the Ledger of Accounts Sent to Accounting Department (SHI- 
MUKE KEIRI-BU KANJO MOTOCHO). Branch B, on the other 
hand, regards the draft as issued by the Accounting Department 
of the main office and the transaction is recorded on the Ledger 
of Accounts Received from Accounting Department (HI-SHIMU- 
KE KEIRI-BU KANJO MOTOCHO). Branch A and Branch B 
exchange their Accounting Department Accounts Report (KEIRI- 
BU KANJO HOKOKUSHO). At the same time, Branch A sends 
the Report on Accounts Sent (SHIMUKE KUCHI KANJOSHO) 
and the Branch B sends the Report on Accounts Received (HI- 
SHIMUKE KANJOSHO) to the Accounting Department of the 
main office. These two reports are in a loose-leaf form and the 
accounting department of the main office records these forms in 
the ledgers of accounts received and accounts sent. As has been 
stated previously, the accounting department does not maintain 
the ledger of branch office accounts. Instead, the Total Balance 
Book of Accounting Department Accounts (KEIRI-BU KANJO 
ZAND AKA SOGO CHO) is kept, listing the branch offices and 
their balances. At the end of each business day, the accounting 
department calculates the balance on the ledger of accounts re¬ 
ceived and transfers it to the Accounts Sent Ledger from wdiich 
it computes the day’s final balance. This balance represents the 
net result of all inter-office transactions. 

All branch offices, on the other hand, calculate the final balance 
of the day from the Ledger of Accounts Sent to Accounting De¬ 
partment, as in the main office. This balance represents the net 
result of their relation with the accounting department in the 
main office. The classification of the inter-office transactions into 
Sent To and Received From eventually produces the same result 
as it would if these transactions were handled as simple debit 
and credit accounts. 

B. FOREIGN EXCHANGE 

The main functions of the Foreign Exchange Department can 
be classified into Selling of Foreign Exchange, Purchasing of For¬ 
eign Exchange, Foreign Exchange Contracts and the Issuance of 
Letters of Credit. The following is a brief explanation of each. 


70 


1. Selling of exchange (URIKAWASE) 1 * 

In a broader sense the selling of exchange includes the selling 
of foreign exchange bills, the issuance of letters of credit and the 
selling of foreign exchange drafts, and T. T., etc. However, only 
the latter two, and Bank Post Remittances will be dealt with in 
this discussion. 

a. Demand draft (SANCHAKU SOKIN KAWASE ).2 The pro¬ 
cedure of issuing the sight or demand draft is similar to that of 
the domestic draft. The issuing bank usually charges a commis¬ 
sion on the draft and when the applicant receives the draft, he 
is given a memo showing the exchange calculation. The bank also 
sends a draft advice to the foreign drawee bank. If the latter is 
a correspondent with whom the issuing bank conducts constant 
mutual transactions, the debit balance of the issuing banks with 
the foreign bank, resulting from the payment draft by the for¬ 
eign bank is cancelled on the book. Otherwise, the issuing bank 
encloses a Cover Draft for a similar amount, drawn in favour of 
the foreign bank in order to collect the amount from another bank 
with which it does business. 

b. Telegraphic transfer (DENSHIN SOKIN). 3 An application 
for T. T. is submitted by the applicant to a bank and the bank in 
turn gives him a T. T. Receipt. The bank sends a cable message to 
the addressee bank in the foreign country concerning the T. T. and 
sends a T. T. Confirmation (DENSHIN SOKIN SAIHO). 


1 The Yokohama Specie Bank has a system of Inter-Office Transfer (DENNAI TSUKIKAE) 
•without the issuance of bank drafts. It is handled in two ways: one where the transferring 
bank notifies, either through mail or cable, the details of remittance and advises the addressee 
office to debit the amount in its account, and the other where the transferring office sends a 
Credit Note (SOKIN TSUKIKAE HYO) for each transfer together with the Advice of Draft 
Sold (HOCHI JO) to the addressee office instructing it to pay the remittance and debit the 
amount in its account. The Yokohama Specie Bank uses the following names to distinguish the 
different currencies used in its transfer: 


Kind of currency 

а. In currency of the country 
where the transfer is paid. 

б. In currency of the country 
where the transfer origi¬ 
nates. 


Called by 
transferring bank 
Transfer sold (URI- 
TSUKIKAE HYO) 

Transfer in home currency 
(FURIDASHI-CHI KA URI- 
TSUKIKAE HYO) 


Called by 
paying bank 

Transfer payable (SHIHARAI 
TSUKIKAE HYO) 

Transfer payable in foreign 
currency (FURIDASHI-CHI 
KA SHIHARAI TSUKIKAE 
HYO) 


2 The demand draft can be of two types: one issued in the currency of the addressee in the 
foreign country and the other issued in the currency of the sender. The Yokohama Specie Bank 
uses the following names to distinguish these drafts: 

Called by 


a. 


b. 


Kind of currency 
In currency of the country 
where the draft is paid. 
In currency of the country 
where the draft is issued. 


issuing bank 
Demand Draft (URI¬ 
KAWASE TEGATA) 
Demand Draft in Home Cur¬ 
rency (FURIDASHI-CHI 
KA URI-KAWASE) 


Called by 
paying bank 

Bills Payable (CHIHARAI 
KAWASE TEGATA) 

F.C.B.P.—Bills Payable in For¬ 
eign Currency (FURIDASHI- 
CHI KA SHIHARAI KAWASE 


TEGATA) 

3 According to the currency used in the transfer of funds by T. T., the Yokohama Specie Bank 
uses the following different names: 

Called by 
sending bank 
T. T. (URI-DENSHIN 
KAWASE) 

T. T. in Home Currency 
(FURIDASHI-CHI KA URI- 
DENSHIN KAWASE) 


а. 

б . 


Kind of currency 
In currency of the country 
where the T. T. is paid 
In currency of the country 
from where the T. T. orig¬ 
inates 


Called by 
paying bank 

T. T. Payable (SHIHARA 
DENSHIN KAWASE) 
F.C.T.T.P.-Telegraphic Trans¬ 
fer Payable in Foreign Cur¬ 
rency ( FURIDASHI-CHI KA 
SHIHARAI DENSHIN 
KAWASE) 


71 



c. Bank post remittance (G1NK0 LUBIN SOKIN). This is a 
combination of the Bank Demand Draft and the Postal Money 
Order. For example, A in San Francisco wishes to send money to 
B in Urawa, near Tokyo, through the Yokohama Specie Bank in 
San Francisco, but the Specie Bank does not have a correspondent 
in Urawa against whom the draft can be issued. In such a case, 
the Specie Bank in San Francisco gives a Receipt to A and in¬ 
structs its office in Tokyo to forward the money to B in Urawa by 
Japanese Postal Money Order. 

2. Purchase of exchange (KAIKAWASE) 1 

The main item in the exchange purchase operation is the ex¬ 
port bill. However, the purchase of the clean bill, exchange pur¬ 
chase contract and the purchase of interest coupons on foreign 
bonds, etc. are also included in this operation. 2 This discussion, 
however, will be devoted to Clean Bills, Bills Secured by Goods 
and Interest Bills. 

a. Clean bills. A Clean Bill is a bill which has no other docu¬ 
ment attached to it. It may be a private bill or a commercial bill 
(SHOKYO TEGATA). There are three types: namely, Banker’s 
Clean Bill, Commercial Clean Bill and Clean Bill under Letter of 
Credit. 

A Banker’s Clean Bill usually refers to a demand bill, such as 
the Cover Draft 3 , drawn by a bank in favor of its branch office or 
its correspondents in a foreign country for the purpose of making 
certain payments. There are also Banker’s Long-Term Bills or 
Finance Bills which are drawn for the purpose of long-term loans 
and also bills known as Accommodation Bills, drawn by a bank for 


1 Besides the operations mentioned under the heading, the Yokohama Specie Bank handles the 
Purchase of Telegraphic Transfer (DENSHIN KAI KAWASE) or known as Telegraphic 
Transfer Bought. In this operation, the collection on bills bought is done by cable. However, 
the bank buys only from seller whose credit standings are unquestionable. In some cases the 
bank only agrees to purchase a bill providing that the payment is to be made after the bill is 
collected by cable. In such a case it is really a collection transaction, but since the collection is 
done through cable, the transaction is handled as T. T. Bought. The bank that collects the T. T. 
Bought calls the bill T. T. R. or Telegraphic Transfer Receivable (TORITATE DENSHIN 
KAWASE). The names given above are those used by banks when the bill is shown in payer’s 
currency. If the bill is shown in the currency of the seller of the bill, the purchasing bank calls 
it H.C.T.T.B., meaning Home Currency Telegraphic Transfer Bought (FURIDASHI-CHI KA 
KAI DENSHIN KAWASE) and the bank that collects the bill calls it F.C.T.T.R., meaning 
Foreign Currency Telegraphic Transfer Receivable (FURIDASHI-CHI KA TORITATE DEN¬ 
SHIN KAWASE). 

2 The Ipter-Office Transfer (DENNAI TSUKIKAE) system used by the Yokohama Specie 
Bank in selling exchange is also used in the purchasing of exchange. In this case the Debit Note 
(KAI TSUKIKAE HYO or GYAKU KAWASE TSUKIKAE HYO) is used instead of the Credit 

Note. In the case of the purchasing of exchange in Inter-Office Transfer, the following names 
are used according to the differences in the currency at the time of purchase. 


Kind of currency 

a. In currency of the country 
when the transfer origi¬ 
nates 

b. In currency of the country 
where the transfer is col¬ 
lected 


Called by transferring 
(purchasing) bank 
D.N.—Debit Note (KAI- 
TSUKIKAE HYO) 

H.C.D.N,—Home Currency 
Debit Note (FURIDASHI- 
CHI KA KAIATSUKIKAE 
HYO) 


Called by 
collecting bank 

D.N.R.—Debit Note Receivable 
(TORITATE TSUKIKAE 
HYO) 

F.C.D.N.R.—Foreign Currency 
Debit Note Receivable (FURI¬ 
DASHI-CHI KA TORITATI 
TSUKIKAE HYO) 


3 Refer to Selling of Exchange. 

72 




the purpose of lending the U. S. Dollar or English Pounds to indi¬ 
viduals for two or three months. 

The Commercial Clean Bill is a bill drawn by business men 
against a customer in a foreign country for the purpose of collect¬ 
ing the cost of merchandise samples, commissions, freight charges, 
etc. Unless the drawer of this type of bill is reliable, banks usu¬ 
ally do not purchase it. 

The Clean Bill under Letter of Credit is sometimes called Clean 
Credit Bill and is usually drawn by travelers in a foreign country 
according to the provision contained in the Traveler’s Letter of 
Credit. 

b. Bills secured by goods (NIKAWASE TEGATA). 1 Bills se¬ 
cured by goods are, in reality, bills secured by B/L, or Cargo Ex¬ 
change Certificate. In foreign trade, this bill accompanies many 
other documents: such as B/L (FUNANI SHOKEN), Insurance 
Certificate (HOKEN SHOKEN), Invoice (OKURI JO), Consular 
Invoice (RYOJI OKURI JO), and Certificate of Origin (GEN- 
SANCHI SHOMEI SHO). Besides these documents, the drawer 
of the bill may also send an Advice of Bill Drawn and a statement 
of account to the importer. In trade between China and Japan, 
the so-called Red Bill of Lading is used. It performs the function 
of the B/L as well as to provide an Insurance Policy on the cargo 
in transit. There is also a B/L known as Through Bill of Lading 
which implies that the B/L covers the transportation of cargo on 
sea as well as on land. 

When a bill is to be bought by a bank, the seller or the exporter 
is asked to submit an Application and a Letter of Hypothecation 
(NIGAWASE TEGATA FUKUSHO). This latter document 
elaborates in detail the agreement between the exporter and the 
bank concerning the purchase of the bill. Almost all possible 
future responsibility on the bill is accepted by the exporter. The 
bank may then purchase the bill without additional security or it 
may loan 70% or 80% of the amount of the bill, paying the re¬ 
mainder when the bill is collected. The bill may either be in D/P 
(Documents against Payment) form or it may be in D/A (Docu¬ 
ments against Acceptance) form. There are also cases when the 
bill is bought on the basis of L/C issued by the importer’s bank. 
In such a case, the provision contained in the L/C will be strictly 
observed at the time the bill is bought and the bill together with 

1 Yokohama Specie Bank uses the following different names for bills bought and collected 
through mail: 

Called by Called by 

Kind of currency purchasing bank collecting bank 

In currency of the payer B.B.—-Bills Bought (KAI B.R.—Bills Receivable 

KAWASE TEGATA) (TORITATE KAWASE 

TEGATA) 


73 



all the documents are sent to its corresponding bank in the foreign 
country for collection. 

If the bill is in a D/P form and the importer wishes to obtain 
the documents before the maturity of the bill, he may do so after 
securing a proper understanding with the collecting bank and 
the shipping company. The importer may submit a Trust Receipt 
(TEGATA FUZOKU NIMOTSU HOKAN SHO) 1 to the bank to 
obtain the B/L or he may obtain the Letter of Guarantee (NI¬ 
MOTSU HIKITORI HOSHO) from the bank, submit it to the 
shipping company and obtain the cargo. In any event, the collect¬ 
ing bank sees to it that the amount of the bill is collected. 

In order to encourage export trade, the government as well as 
large municipal governments have adopted the following policies: 

(1) Indemnification system of losses on export advances (YU- 
SHUTSU SHIKIN YUZU SONSHITSU HOSHO SEIDO). Under 
this system the government or large city municipal government 
pays part of the losses caused by export advances (YUSHUTSU 
MAEGASHI) made by banks to exporters. 

(2) Indemnification system of losses on advances for manu¬ 
facture of export goods (YUSHUTSU-HIN SEIZO SHIKIN 
YUZU SONSHITSU HOSHO SEIDO). Under this system, losses 
which may be incurred on advances made by banks to the export¬ 
ers for the purpose of manufacturing export goods are indemni¬ 
fied either by the government or by the large municipal govern¬ 
ments. 

(3) Export bill indemnification system (YUSHUTSU TEGATA 
HOSHO SEIDO). Under this system, when an export bill is dis¬ 
honored, that is when the payer of the bill refused to pay, the 
Japanese government or the municipal governments in large cities 
compensate part of the losses. There are two kinds of compensa¬ 
tion under this system: one is compensation to the bank, known as 
KO-GO HOSHO (#A compensation). In this case, the compen¬ 
sation applies to the bank, and the drawer of the bill is held liable 
on the bill. The other type is known as OTSU-GO HOSHO (#B 
Compensation). It is a kind of insurance, applied not only to 
the bank but also to the exporter, or the drawer of the bill. If 
the bill becomes dishonored, the drawer of the bill is not held liable 
for the losses up to the limit of the amount to be compensated. 

According to Law #44 of 6 March 1941, which became effective 
on 1 April 1941, relating to the export indemnification, the amount 
of compensation on losses is raised from 80 percent to 90 per- 

1 The Yokohama Specie Bank provides two types of Trust Receipts to importers: one is the 
A Form and the other is the B Form. Under the A Form, the bank permits the importer not only 
to transfer the cargo from the ship to a warehouse, but also to sell the cargo to another business 
man. The B Form, on the other hand, permits the importer only to transfer the cargo from the 
ship to a warehouse and the importer returns the warehouse receipt to the bank. 


74 



cent. If the bill is dishonored, the expenses incurred in the dis¬ 
posal of goods will be taken into consideration in the determina¬ 
tion of the amount of losses on the export bill. 

c. Interest Bills (RITSUKI TEGATA). 1 This is a bill which 
shows the rate of interest to be charged the payer of the bill at 
the time of collection. The difference between this bill and the 
bill secured by goods described above is that the former expresses 
the amount of bill in the exporter’s currency while the latter ex¬ 
presses the amount in the importer’s currency. When a bank 
purchases the latter bill, the rate of exchange which the bank uses 
at the time the bill is bought includes the amount of interest on 
the bill from the purchase date to its maturity date, plus the bank’s 
commission. Therefore, no further charge of interest on the bill 
is necessary. However, when the interest bill is bought by the 
exporter’s bank, the interest on the bill is charged to the importer. 
Accordingly, the rate of interest to be charged is shown on the bill. 
When the bill matures, the importer pays the amount of the bill 
as well as the interest from the date the bill was issued to the day 
of payment on the basis of the acceptance rate. As a specific ex¬ 
ample, let us assume that a Japanese importer has to pay an inter¬ 
est bill amounting to $1,000. with 6% interest for 50 days and the 
acceptance rate is $29. per 100. yen. The total amount of payment 
will be 

1,000. + (1,000 X °' 06 * 50 ) 

obo 

---29-= 8,476.58 yen 

Too’ 

In prewar days, Japanese importers from the U. S. and from Great 
Britain usually paid the interest bills, while the Japanese export¬ 
ers to China, the South Sea Islands, India and Central or South 
America usually drew bills in their own currency. 

The Japanese government issued a foreign trade control order 
on 14 May 1941 based on Article 9 of the National Mobilization 
Law. This order became effective in Japan proper from the 15th 
of May and in Korea, Formosa, and other areas from the 25th of 
May, 1941. Its pertinent points are that the Minister of Com¬ 
merce and Industry may, when he finds it necessary, order the 
export or import of a certain commodity, limit the quantity in 
trade, or stop the trade. The Minister may dispose of the mer¬ 
chandise as he sees fit, and any losses which are incurred to the 
parties involved are to be compensated by the government. 

1 Yokohama Specie Bank uses the following different names for this type of bill: 

Called by Called by 

Kind of currency purchasing bank collecting bank 

In currency of the seller of I.B.—Interest Bill (RITSUKI I.B.R.—Interest Bill Receivable 

the bill KAWASE TEGATA) (TORITATE RTTSUKI 

KAVVASE TEGATA) 


75 






3. Foreign exchange contract 

This refers to the contract on future exchange transactions. 
The future exchange rate is determined by a bank on the basis 
of the present rate as well as the supply and demand situation of 
foreign exchange. By this contract exporters and importers are 
able to eliminate the uncertainty caused by the fluctuations in the 
foreign exchange rate. Furthermore, the bank can derive a profit 
from this transaction. Banks enter into selling contracts with 
importers, buying contracts with exporters and selling and buying 
contracts with each other. The term of contract which runs three 
days to a month is called the short-term contract while the con¬ 
tract which runs from three months to four months is called the 
long-term contract. The selling contract is usually long-term, 
while the buying contract is usually a short-term contract. 

The exchange broker 1 usually acts as middleman in the trans¬ 
action. He charges 1/16% of the amount involved in a transaction 
between business men and banks and 1/32% of the amount in 
trade between the banks, as a commission. When a contract is 
made through a broker, the broker prepares the contract and gives 
one to both buyer and seller. In some cases, the contract may be 
postponed or cancelled. If the contract is cancelled, the bank usu¬ 
ally penalizes the cancelling party and the contract is canceled 2 
by settling the difference between the amount of contract and the 
amount in T. T. rate on the day the contract is canceled. In recent 
years, however, Japanese banks have agreed not to pay the differ¬ 
ences, if any, to the business men when the contract is canceled. 

4. Letters of credit (SHINYO JO) 

There are two types of letters of credit—the commercial and the 
traveler’s. 

a. Commercial letter of credit (SHINYO JO). The commercial 
letters of credit used by Japanese importers are of two types: 
the Clean Letter of Credit and the Letter of Credit on Bills Se¬ 
cured by Goods (NIGAWASE SHINYO JO) . 3 The former is used 
for clean bills while the latter is issued by the importer’s bank 
at his request, guaranteeing the acceptance and the payment on 
the exporter’s bill drawn against the importer. The following is 
a brief explanation of the different types of commercial letters 
of credit. 

(1) Revocable and irrevocable L/C. From the standpoint of 
the exporter, the revocable L/C cannot be considered reliable. 

1 The activities of exchange brokers are greatly limited since the proclamation of foreign ex¬ 
change regulations. 

2 Yokohama Specie Bank calls it Set Off. 

3 The Yokohama Specie Bank calls it Documentary Letters of Credit. 


76 



Ihe #C Form of the Yokohama Specie Bank is of this type, but 
it is believed that revocation does not usually take place unless 
circumstances make it unavoidable. 

(2) Confirmed and unconfirmed L/C. The confirmed L/C con¬ 
tains the statement guaranteeing the acceptance and the payment 
of the exporter’s bill. Generally speaking, the revocable L/C is 
unconfirmed while the Irrevocable L/C is confirmed. 

(3) With recourse and without recourse. The L/C with re¬ 
course refers to a bill which is drawn according to L/C and dis¬ 
honoured, recognizes the right to demand repayment to the drawer 
or to the person who sold the bill to the bank and vice versa. 

(4) Open and restricted. The open L/C refers to the bill which 
may be bought by any bank, while the restricted L/C refers to 
those bought only by a certain designated bank. As a rule, the 
open L/C is sent directly to the exporter by the importer. But 
in general the bank sends the L/C to a bank in the same city as 
the exporter, and the bank notifies the exporter of the arrival of 
the L/C. Thus, the open and restricted rule of L/C is not strictly 
adhered to. 

(5) Revolving credit. This refers to the L/C which is used 
over and over again providing the bill outstanding does not ex¬ 
ceed the amount of the L/C. To be more specific, when the im¬ 
porter pays the bill drawn according to L/C, the exporter can draw 
another bill under the same L/C. The so-called Term Revolving 
L/C refers to the one in which the limitation on the amount of 
bill and the time: e.g., one month is set and permits the exporter 
to draw the bill over and over again within the limit of amount 
and time until the L/C is cancelled. 

(6) Credit with red clause. This refers to the L/C which per¬ 
mits the exporter’s bank to grant an advance loan 1 to the ex¬ 
porter. The statement of this request is written in Red Ink in the 

L/C. 

(7) Credit Opened by London or New York Bankers was also 
in use in prewar times. These were usually drawn either in Eng¬ 
lish or in U. S. currency at the direct request of the importers or 
indirectly through another bank 2 , usually the importer’s bank. 

The application for L/C 3 contains information relating to the 

1 The Yokohama Specie Bank calls this type of advance, KAWASE MAEGASHI. 

2 The L/C #S Form of the Yokohama Specie Bank is of the same type. 

3 The letters of credit issued on Bills Secured hy Goods by the Yokohama Specie Bank are of 
two types: one is in the Instruction Form and the other is the letter of credit. 

a. Instruction forms: These are of two types: the C Form and the B Form. The former is the 
one instructing the foreign bank to purchase the bill drawn by the exporter against the importer. 
It is revocable, but the revocation rarely takes place. The B Form of instruction is one where 

Continued on page 78 


77 



amount and kind of currency to be shown on the bill; the name 
of the beneficiary, who is generally the exporter; the drawer and 
the drawee of the bill; maturity date of the bill; time limit for the 
L/C; the name, quantity, the total and the unit price of the mer¬ 
chandise ; date of shipment; names of shipping and arrival ports; 
the name of the ship; the name of accompanying documents and 
the amount of insurance, etc. In many cases, the bank issuing 
the L/C requests the applicant to deposit security with the bank 
against the L/C issued. The security requirement naturally de¬ 
pends upon the credit standing of the applicant, as well as that 
of the exporter, the kind of L/C issued, and the type of mer¬ 
chandise in question. 

The bank which issues the L/C then notifies the foreign bank 
concerning the L/C. The L/C may be issued to the exporter, to 
the branch office or to the correspondents in the foreign countries. 
In any case, it is a general rule that the notification * 1 2 3 4 5 6 of the L/C 
issued is done through the bank in the foreign country to the 
exporter. 


Continued from page 77 

the bank gives instructions to its branch offices in foreign countries to purchase the shipping 
documents from the exporter, obtain the exporter’s receipt for the cargo sold and draw a bill 
against the importer. The exporter’s name, therefore, does not appear on the bill. Accordingly, 
it is called the Irrevocable and without recourse Form of instruction. 

b. Letters of credit. Following are the different forms of letters of credit issued by the Yoko¬ 
hama Specie Bank: 

(1) #S. C:—guarantees the acceptance and the payment on the bill drawn by the exporter 
against the importer. However, the purchase of the bill under this L/C is limited only to the 
branch offices of the Yokohama Specie Bank. 

(2) #D. C:—is the London Acceptance Credit issued by the Yokohama Specie Bank to accept 
the payment of the exporter’s bill. It is an open credit, but in many cases the negotiation for 
the sale of the bill by the exporter is limited to the Yokohama Specie Bank in London. The 
bank issues the credit to the exporter in the foreign country and notifies him through the Yoko¬ 
hama Specie Bank in London or through another foreign bank. The Yokohama Specie Bank in 
London is naturally informed of the issue. The exporter then draws a bill against the Yokohama 
Specie Bank in London and the Yokohama Specie Bank in London accepts it. At the same 
time, the Yokohama Specie Bank in London notifies the issuing bank in Japan by cable the 
number of L/C, the amount and maturity date. The issuing bank then requests the importer 
to draw a bill in the same amount and maturity date in favour of the bank and requests the 
importer to accept the bill. When the maturity date comes, the bank collects the bill from the 
importer and remits the amount to the London Yokohama Specie Bank by means of Inter-Office 
Transfer (DENNAI TSUKIKAE). The New York acceptances are also used by the Yokohama 
Specie Bank. 

(3) #S:—is issued only to the London Yokohama Specie Bank; otherwise the method of 
handling this L/C is exactly the same as that of the #D.C. letter of credit. 

(4) #D:—is the Open, Confirmed, Irrevocable Bank Credit issued by the Yokohama Specie 
Bank to exporters. The Exporter draws a bill against the Yokohama Specie Bank which issues 
the L/C and the bank in return requests the importer to draw a bill on a similar amount and 
on similar maturity date in favour of the bank which issued the L/C. 

(5) The Yokohama Specie Bank also has the following different letters of credit, but they are 
rarely used: 

(a) #E:—Y.S.B. guarantees the acceptance and the payment of the bill drawn by the exporter 
against the importer. It is an irrevocable L/C. 

(6) #L:—Issued in domestic trade, and payment on the bill is guaranteed by the Y.S.B. 

( c) #B.A:—is a New York Acceptance Irrevocable instruction. 

(d) #C.A:—is a New York Acceptance Revocable instruction. 

1 In the case of the #C and the #B instruction forms used by the Yokohama Specie Bank, no 
special form of notification is used. It merely sends an instruction attached to the copy of the 
application for L/C to the bank in the foreign country. 


78 



b. Traveler’s letter of credit (RYOKO SHINYO JO). 1 This is 
issued for the benefit of travelers in foreign countries. A traveler 
may carry his own identification card 2 or the signature of the 
traveler may be sent directly to the drawee banks in the foreign 
country by the bank which issues the L/C. The Traveler’s Cheque 
is another form of L/C. The traveler draws the cheque at the 
bank where he cashes it in the foreign country, and the payment 
of the cheque is guaranteed by the bank which issued the credit 
providing the cheque bears the true signature of the traveler for 
whom the credit is issued. 


1 Yokohama Specie Bank issues the following different types of Traveler’s Letter of Credit: 

a. #A:—is issued by the bank requesting one or more of its branch offices in foreign countries 
to purchase demand bills drawn by the traveler against the bank which issued the L/C. The 
indication book (Identification Book) may be carried by the traveler or the issuing bank sends 
the signature of the traveler to all the branch offices to whom the purchase request is sent. 

b. #A.C:—is issued by the Y.S.B. requesting its branch offices and its correspondents in for¬ 
eign countries to purchase sight drafts drawn by the traveler against the bank which issued 
the L/C. 

c. #C.C:—is issued by the Y.S.B. requesting all its branch offices and its correspondents in 
foreign countries to purchase demand drafts drawn by the traveler against its London branch 
or its New York branch office. The payment of the draft is guaranteed by the bank which issued 
the L/C, and the issuing bank sends samples of the signature and the seal of the traveler to its 
London office or to its New York Office. 

2 The Yokohama Specie Bank calls it “Indication Book.” 




79 



VIII. OPERATING DEPARTMENT—COLLECTION DIVISION 


In some banks the collection operation is handled by the Ex¬ 
change Division, while in the large banks this operation is handled 
by a separate Collection Division (TORITATE KAKARI). As its 
name implies, the function of the Collection Division is to collect 
on promissory notes, bills of exchange, checks, interest coupons 
and dividend receipts, etc., for its customers, its main or branch 
offices, and its correspondents. Fees are charged to cover the cost 
of operation as well as a commission for the service. Items for 
collection can be divided into two main categories: the items pay¬ 
able at the bank which handles the collection, and the items pay¬ 
able at other banks, regardless of whether the bank is situated 
in the same city or not. Customers who request a bank to collect 
on their bills will be asked to endorse the bills with a statement 
specifying the purpose, such as “For the purpose of collection.’’ 1 
This statement serves tc distinguish the endorsement from an 
ordinary negotiation, or the transfer of claims on the bill to an¬ 
other person. 

A. BILLS FOR COLLECTION PAYABLE ELSEWHERE 

(TASHO DAIKEN TORITATE TEGATA) 

1. Kinds of bills 

There are three different kinds of bills in this group: namely, 
Bills Discounted Payable Elsewhere (TASHO WARIBIKI TE¬ 
GATA), Bills Secured by Goods (NIGAWASE TEGATA), and 
Bills for Collection Payable Elsewhere (TASHO DAIKIN TORI¬ 
TATE TEGATA). The last includes not only the bills other than 
the bills discounted payable elsewhere and the bills secured by 
goods, but also other collection items, such as interest coupons, 
dividend receipts, checks, etc. These items are sometimes called 
DAI TE which is an abbreviation for DAIKIN TORITATE TE¬ 
GATA). The Bills Discounted Payable Elsewhere and the Sills 
Secured by Goods mentioned above are the bills on which the bank 
made loans, and are to be sent to its correspondents or its main or 
branch offices for collection. The collection operation on these 
bills is sometimes performed by the Loan Division, while in other 
cases, it is done by an independent Collection Division. 

The applicants for bills for collection payable elsewhere can be 
divided into three groups: namely, the customers, the main or 


1 Japanese Laws on Bills, Article 18, paragraph 1. 

80 





the branch office of the bank, or its correspondents. When a cus¬ 
tomer requests the bank for collection of a bill, the latter will 
examine the bill to see whether it satisfies all legal requirements. 
The bank gives the customer a receipt for the bill (DAIKIN TORI- 
TATE TEGATA UKETORI SHO), or the receipt is sometimes 
recorded on the customer’s pass book. The bill is then recorded 
on the Register of Bills for Collection Payable Elsewhere (TASHO 
DAIKIN TORITATE TEGATA KINYU CHO). 1 When the appli¬ 
cant for collection is the bank’s main or branch office or its cor¬ 
respondent in a distant city, and the bill is to be collected by an¬ 
other bank in the same city, a different procedure is required. The 
bill sent to the bank is accompanied by a Delivery Slip (SOTATSU 
JO) and the bank must check the slip against the bill. The re¬ 
ceiving bank then sends the Arrival Advice of the Bill (TEGATA 
TOCHAKU HOKOKU) to the sender bank. The bill is recorded 
in the Forwarded To column of the Register of Bills for Collec¬ 
tion Payable at home and also recorded on the Register of the 
Bills for Collection Payable Elsewhere. 

When bills sent for collection are bills on which the bank made 
loans, such as Bills Secured by Goods (NIGAWASE TEGATA) 
or Bills Discounted Payable Elsewhere (TASHO WARIBIKI TE¬ 
GATA), they are recorded on the Register of Bills Discounted for 
Collection Payable Elsewhere (TASHO WARIBIKI TEGATA 
TORITATE KINYU-CHO 2 and the Register of Bills Secured by 
Goods for Collection Payable Elsewhere (TASHO NIGAWASE 
TEGATA TORITATE KINYU-CHO). 3 

2. Procedure of sending bills for collection 

As has been pointed out previously, all bills requested for col¬ 
lection must be endorsed by the applicants, and all bills for col¬ 
lection payable elsewhere must be endorsed by the sending bank. 
The bank endorsement contains the name of the sending bank, the 
signature and seal of the representative of the bank, the date and 
a statement that “The amount on the bill has been requested for 
collection. Please pay the same to X bank or to its order.” Bills 
which are to be collected by the main or the branch office of the 
sending bank need not be endorsed. When the collection item is 
a receipt or a check made payable to a bearer, a rubber stamp is 
stamped on the check or the receipt indicating the name of the 
sending bank and the receiving bank. Checks to be sent for col¬ 
lection are usually made out to SEMBIKI 4 , drawing parallel lines 
on the face of the checks. All collection items are numbered by 

1 See item 56, appendix 3. 

2 See item 57, appendix 3. 

3 See item 58, appendix 3. 

* Refer to the discussion on Current Deposit and Cheque. 


81 



rubber stamping on the face, according to NITE which is the 
abbreviation for NIGAWASE TEGATA (Bills Secured by Goods) ; 
WARI TE meaning WARI BIKI TEGATA (Bills Discounted) ; and 
DAI TE which is the abbreviation for DAIKIN TORITATE TE- 
GATA (Bills for Collection). If the sending bank wishes to know 
by telegram whether or not the bill has been collected when due, 
such request is stated on the face of the bill in rubber stamp: 
such as, DENSHIN TSUCHI (Notify by Telegram), or NYUKIN 
DENKOKU (When collected, notify by telegram). Another kind 
of rubber stamp which states FUWADARI DEMPO (If dishon¬ 
ored, notify by telegram) is also used when the sending bank 
wishes to be informed. When a cargo exchanged certificate is 
attached to the bill, it should also be stated on the bill. 

The Collection Division will then prepare Delivery Slips (TE¬ 
GATA SOTATSU JO) and an Arrival Advice of Bills (TEGATA 
TOCHAKU HOKOKU), and send them to each receiving bank 
with the bills. All bills sent for collection are recorded on the 
Maturity Book of the Bills for Collection Payable Elsewhere 
(TASHODAIKIN TORITATE TEGATA KIJITSU CHO). 1 All 
bills are recorded in the book by date due. 

3. Methods of entry making 

When a bill is collected on the date due, the sending bank will 
be notified and it then records the collection on the Register of 
Bills for Collection Payable Elsewhere, noting the collection and 
transfer dates. The collection date is the day on which the bill 
has been collected and the transfer date is the day on which the 
receipt entries are made. If Bank C sends the collection notice 
of a bill to Bank B which was requested by customer A, amounting 
to 1,000. yen, Bank B makes the following entry, assuming that 
the money was deposited into A’s current account: 


Debit Credit 

A’s Current Account-_ 1,000. yen Bank C__1,000. yen 


Bank B sends a notice of the bill collected (TORITATE ZUMI 
TSUCHI SHO) to A, and A will return the Receipt of Bills for 
Collection (DAIKIN TORITATE TEGATA UKETORI SHO) to 
the bank with A’s signature and seal on it. This receipt was orig¬ 
inally given to A upon application for collection of the bill. 

When the bill collected is one requested for collection by a cor¬ 
responding bank, that is, when Bank B receives a notice of col¬ 
lection from Bank C originally requested for collection by Bank 
D, Bank B has to notify Bank D of the collection. Bank B in the 
above case, prepares an Accounts Report (SHOKANJO HOKOKU 


1 See item 59, appendix 3. 

82 







SHO), recording the amount collected on the credit side of “Your 
Account (KIHO KUCHI)” and sends it to Bank D. The Accounts 
Report is similar to the Notice of Bills Collected. The following 
entry, for 1,000. yen, for example, is made by Bank B to record 
the transaction: 

Debit Credit 

Bank D_1,000. yen Bank C_1,000. yen 

There are cases where the payer of a bill requests the collecting 
bank to postpone the payment on the bill due to his financial diffi¬ 
culty or other difficulties between the parties involved in the bill. 
In this case, the collecting bank notifies the bank which sent the 
bill of the payer’s request for deferment, including the reason and 
the date limit requested for postponement. On the other hand, 
there are also cases where the sending bank inquires into the rea¬ 
sons for the delay when it does not receive the collection notice 
from the collecting bank after the maturity date. In this case, 
the bank sends an inquiry slip (TORITATE TEG AT A TOIA- 
WASE JO). When the request for the postponement of the pay¬ 
ment is received, the bank sends a Notice of Bill Not Yet Col¬ 
lected (TEGATA TORITATE MISAI TSUCHI) to the applicant 
for collection. This notice contains the reason for the delay in 
payment and the amount of time requested for payment. The 
applicant then notifies the bank whether or not he grants the re¬ 
quest, and the bank in turn notifies the collecting bank of the 
applicant’s decision. When a bill is dishonored and is returned 
from the collecting bank, a notice of the arrival of the bill is sent 
to the collecting bank and the bill is returned to the applicant in 
exchange for the receipt of the bill for collection. 

B. BILLS FOR COLLECTION PAYABLE AT HOME 

(TOSHO DAIKIN TORITATE TEGATA) 

1. Kinds of bills payable at home 

There are two types of applicants in this kind of collection bills: 
first, the customers of the collecting bank; and secondly, its cor¬ 
responding banks or its main or branch offices. The former bills 
are called TOKI TOSHO TORITATE TEGATA (the bills for col¬ 
lection payable at home originated by us), and the latter type 
bills, are called SENKI TOSHO TORITATE TEGATA (Bills for 
collection payable at home originated by others). Bills requested 
for collection from the latter group may include bills which are 
to be paid at the payer’s home, at the bank which collects the bill, 
at other banks in the same city, and bills which need to be trans¬ 
ferred to banks in other cities for collection. Bills requiring trans¬ 
fer are first recorded in the Forwarded To column of the Register 


83 




of Bills for Collection Payable at Home and the procedure for col¬ 
lection of bills payable elsewhere is followed. 

* 

2. Handling of bills payable at home 

Receipts or Arrival Advices are issued against all bills received 
for collection and they are recorded on the Register of Bill for 
Collection Payable at Home (TOSHO DAIKIN TORITATE TEG- 
ATA KINYU-CHO). 1 All payers of the collection bills are in¬ 
formed of the date due and arrival of their bills. The bills are 
arranged in order of maturity dates, recorded on the Maturity 
Book (TOSHO DAIKIN TORITATE TEGATA KIJITSU-CHO) 2 
and kept in the manager’s desk. When the maturity date comes, 
they are collected either by bank messenger, through the clearing 
house or paid by the customer at the bank. When bills are col¬ 
lected at maturity, cash receipt dempyos or transfer dempyos are 
prepared to record the transactions and the collections are noted 
on the Register of Bill for Collection Payable at Home and the 
Maturity Book of Bills for Collection Payable at Home. After 
recording all receipts on books, the collecting bank notifies all 
banks or persons from whom the collections were requested. 

In some cases, the corresponding bank requesting the collection 
sends a Request for Return of Bill (KUMI MODOSHI IRAI JO) 
if the payer fails to pay at maturity. In such a case, the collecting 
bank will return the bill to the corresponding bank inclosing a 
Return Bill Arrival Advice (HENKYAKU TEGATA TOCHAKU 
HO). The bill thus returned is recorded on the proper books. 
The Returned Bill Arrival Advice is returned to the sender when 
the bill reaches the corresponding bank. If a bill is dishonored at 
maturity, the collecting bank will notify the corresponding bank 
which requested the collection either by telegram or by ordinary 
mail, depending upon the circumstances and the bill will be re¬ 
turned to the corresponding bank. 


1 See item 60, appendix 3. 

2 See item 61, appendix 3. 



IX. OPERATING DEPARTMENT — OTHER DIVISIONS, 
BUREAU AND CLEARING HOUSE OPERATIONS 


A. SECURITY DIVISION 

The Security Division (SHOKEN KAKARI) in a bank deals 
with the purchasing and selling of securities and their safe-keep¬ 
ing. It studies the various securities, such as government bonds 
(KOSAI SHOSHO), Ministry of Finance bills (OKURA-SHO 
SHOKEN), stocks (KABUKEN) and corporation bonds (SHA- 
SAI), etc., from the standpoint of investment as well as from the 
standpoint of utilizing idle liquid funds for a short period of time. 
Purchases and sales are conducted under the direction of a re¬ 
sponsible officer of the bank. All purchases and sales are re¬ 
corded, according to kind, either on the Register of Purchase and 
Sale of Government Bonds (KOKUSAI SHOKEN BAIBAI KIN- 
YU-CHO), the Register of Purchase and Sale of Prefectural and 
Municipal Bonds (CHIHO SAIKEN BAIBAI KINYU-CHO) or 
the Register of Purchase and Sale of Stocks (KABPKEN BAI¬ 
BAI KINYU-CHO). Each of these books is divided into purchase 
and sales columns. When securities are purchased, the purchase 
price is shown on the purchase column and when they are sold, 
the average purchase price, the sales price and the difference in 
these two is recorded on the sales column indicating either profit 
or loss in the transaction. 

The securities kept by this division consist not only of those 
belonging to the bank, but also those which are entrusted for safe¬ 
keeping by its customers, those which are deposited by its cus¬ 
tomers as collateral for loans and warehouse receipts, etc. All 
incoming and outgoing securities are recorded on the Security 
Dempyo (SHOKEN DEMPYO) by each division where the trans¬ 
action originates. For example, if securities are received as 
collateral for loan, the Security Dempyo is prepared by the Loan 
Division, while if the securities are received as collateral for 
overdraft loan, the dempyo is prepared by the Deposit Division. 
All Security Dempyos are examined by the head of the division 
as well as by the manager of the bank. It keeps a Record Book 
on Securities in Possession (SHOYU YUKASHOKEN DEIRI- 
CHO), Record Book of Collateral Securities (TAMPO SHOKEN 
DEIRI-CHO) and Record Book of Warehouse Receipt Collaterals 
(TAMPO KURANI SHOKEN DEIRI-CHO). 


85 


B. MORTGAGE AND SAFE-KEEPING DIVISION 

The Mortgage and Safe-Keeping Division (TAMPO HIN OYOBI 
HOGO AZUKARI KAKARI) handles legal matters relating to the 
establishment of mortgages, the power of attorney on the collateral 
securities, certificates of deposit on collateral securities from cus¬ 
tomers, and the establishment of claims on real estate mortgages. 
All collaterals thus received are recorded on the Register of Collat¬ 
eral Securities (TAMPOHIN KINYU-CHO) and when collaterals 
are received from customers, receipts are issued to them. It also 
receives valuables for safe-keeping. The articles thus received are 
examined and recorded on the Register of Deposits for Safe Cus¬ 
tody (HOGO AZUKARI HIN KINYU-CHO) and when the articles 
are returned, fees are charged for the service. 

C. RECEIPT AND PAYMENT BUREAU 

The Receipt and Payment Bureau (SUITO KA) is generally 
divided into the Receiving Division, the Paying Division and the 
Clearing Division. 

1. Receiving Division 

The Receiving Division handles not only cash, but also checks, 
bills and other items which are handled as cash. When the receiv¬ 
ing teller receives cash from the customer, he records the kinds of 
receipts on the Cash Receipt Dempyo and on the Cash Receipt Book 
(SHUNO CHO). He puts his seal on the Receipt Dempyo to certify 
that the cash has been received and sends it to the department or 
division of origin. If the Cash Receipt Dempyo is for a deposit of 
money into the customer’s current account, it will go to the Deposit 
Division and if the cash receipt is for the repayment of a loan, the 
Receipt Dempyo will go to the Loan Division. At the end of the 
business day, the receipt teller totals the Cash Receipt Book, checks 
the total amount of cash received with the Accounting Division and 
the amount of total receipts is sent to the Payment Division. 

2. Payment Division 

The Payment Division (SHIHARAI KAKARI) pays out cash 
according to the Cash Payment Dempyo (SHIHARAI DEMPYO) 
sent to this division by the other divisions through the manager. 
Before the dempyo is paid, the payment teller makes certain that 
the dempyo bears the manager’s seal and pays to the person whose 
pay-tag bears the same number as is shown on the dempyo. After 
the dempyo is paid, the teller places his seal on the dempyo and 
records the payment in the Payment Book (SHIHARAI CHO). 
At the close of the business day, the Payment Book is totaled and 


86 


is deducted from the total of the balance forwarded from the pre¬ 
vious day and the amount received during the day. The balance 
then indicates the amount of cash on hand as well as the cash bal¬ 
ance in the Accounting Department. Checks and the bills payable 
by other banks which are received as cash during the day are re¬ 
corded on the respective books and sent to the Clearing Division 
tor the purpose of presenting them to respective banks for collec¬ 
tion at the Clearing House. 

i 

3. Clearing Division 

The Clearing Division (KORAN KAKARI) prepares checks, 
bills and other items to present for collection at the Clearing House 
and handles the same items received at the Clearing House which 
are to be paid by its own bank. The procedures of handling these 
items are discussed below. 

D. CLEARING HOUSE OPERATION 

The so-called Clearing House (TEGATA KOKAN SHO) 1 is a 
juridical body, incorporated by a group of banks in a given locality 
for the purpose of exchanging checks, bills, and interest coupons, 
etc., which are received from customers 2 during the course of busi¬ 
ness and payable by other member banks of the Clearing House As¬ 
sociation. The debit and credit balances thus created by the ex¬ 
change of checks and bills, etc., are also cleared through a mother 
bank , 3 generally the Bank of Japan. Membership in the Associa¬ 
tion, in metropolitan areas, is generally limited to banks which 
have current accounts with the Bank of Japan and each member 
bank is required to deposit with the Association a certain amount of 
Grade A securities as collateral in order to guarantee the payment 
of debts resulting from the clearing operation. Initial membership 
fees are charged, usually according to the capitalization of each 
member bank. When a member bank becomes financially embar¬ 
rassed or violates the regulations of the Association, the chairman 
of the Association may order the bank not to participate in the 
clearing operation, and with the approval of the other members of 
the Association, its membership in the Association may be can¬ 
celled. 

The expenses for the maintenance of the Clearing House are 
borne by each member of the Association ; one-half is equally di- 

1 In April 1941 there were 10 in Korea, 5 in Formosa, and 49 clearing house associations in 
Japa’n. The so-callecUsix large city clearing house associations are the associations in Tokyo, 
Osaka, Kobe, Kyoto, hTagoya, and Yokohama. 

2 Refers not only to business men, but also to corresponding ba.nks. 

3 In Korea and in Formosa the Bank of Chosen and the Bank of Taiwan act as mother banks 
respectively. 


37 



vided and the other half is paid by each bank in proportion to the 
amount of clearing done by each bank. The clearing house agree¬ 
ment also provides for the method of clearing operation, the method 
of settling the clearing balance, the rules governing the return of 
dishonored checks and bills, etc., the rules governing the perform¬ 
ance of clearing operation by a member bank on behalf of a non¬ 
member bank, and penal clauses in case of violation of the agree¬ 
ment. When a bank cannot be admitted as a qualified member of 
the Association, it may make an agreement with one of the member 
banks through which it may enjoy the privilege of clearing checks 
and bills at the clearing house. 

1. Procedure of clearing house operation 

A member bank may present the following items for clearance: 

a. Bills. Bills of exchange, promissory notes or deposit certifi¬ 
cates which have matured or are payable at demand. 

b. Checks. Ordinary checks, Lined checks (SEMBIKI KO- 
GITTE), acceptance checks and bank drafts. 

c. Certificates. Deposit certificates, dividend receipts, postal 
money orders, postal deposit receipts, government payment orders, 
interest coupons on government, and corporation bonds. 

The bills of exchange mentioned above are those which are ac¬ 
cepted by the payers and payable either at the member banks or at 
the bank whose clearing operation is done by another bank. They 
may be commercial bills or bills secured by goods discounted by the 
bank; bills which are requested for collection by the customers who 
have current accounts with the bank; bills which are received for 
collection from its corresponding banks; or bills arising from its 
call loan transactions with other banks. The other items mentioned 
above need no further explanation. 

2. Preparation for clearing 

The Clearing Division of a bank first endorses all items, indicat¬ 
ing that the amount is received. This is done by rubber-stamping 
the back of each item. All items are then classified according to the 
bank to which it will be presented for payment and slips (KOKAN 
SOEHYO) are attached to the top of each group showing the name 
of the bank, the number of checks or bills, and the amount. Each 
total amount is recorded under each bank on the credit side of the 
Clearing Balance Sheet (KOKAN SASHIHIKI-HYO). On the 
other hand, the kinds, the number of checks or biljs, etc., and the 
name of the bank to which they are presented are recorded on the 
Clearing Book (KOKAN BO or KOKAN TEGATA HIKAE-CHO). 


88 


The reason for crediting the amount under each bank on the 
Clearing Balance Sheet is that the bank regards these amounts as 
payment for deposit with the Bank of Japan. The Clearing Divi¬ 
sion then prepares a Cash Payment Dempyo or Transfer Dempyo 
in such a way as to indicate that all items to be presented for col¬ 
lection at the Clearing House have been deposited with the Bank 
of Japan. The items which were handled as cash when they were 
received are totaled and the Cash Payment Dempyo is prepared for 
the total amount. On the other hand, the items which were re¬ 
quested for collection by customers as well as by the correspondents 
are totaled and a Transfer Dempyo is prepared for the amount. To 
be more specific, let us assume that the Yasuda Bank in Tokyo has 
presented the following items for collection at the Clearing House: 

a. Items which are deposited in current accounts of customers: 


(1) Two checks payable by the Teikoku Bank, 

amounting to_ 15,000. yen 

(2) Three acceptance checks payable by the 

Mitsubishi Bank, amounting to_ 20,000. " 

(3) One deposit certificate payable by the 

Sumitomo Bank, amounting to__ 5,000. 

(4) 12 interest coupons on Government Bonds 

payable by the Bank of Japan, amount¬ 
ing to___ _ 250. " 

(5) Three postal money orders payable by the 

post office department, amounting to. _ 500. ” 


Total ___ 40,750. " 

b. Other items: 

♦ 

(1) One commercial bill discounted (Bills 

Discounted #100) payable by Mitsui & 

Co. at the Sanwa Bank_ 15,000. yen 

(2) Two Bills of exchange received for collec¬ 

tion, #2 and #3, from the branch office 
in Osaka and payable by Yamata & Co. 
at the Teikoku Bank_ 6,000. ” 

(3) One bill of exchange, drawn and payable 

by the Sumitomo Bank to the Yasuda 

Bank (Loan on Bill #5)_ 10,000. ” 

(4) One bill of exchange (Call loan #12) 

drawn by the Sanwa Bank, payable at 

demand to the Yasuda Bank- 15,000. " 

» _ 

Total _ 46,000. " 


89 













For the group a items, the Yasuda Bank will make the following 
Cash Payment Dempyo, indicating that the total amount has been 
deposited with the Bank of Japan: 

PAYMENT DEMPYO 

Date 

Account and particulars Amount 

s Deposit with the Bank of Japan: Items pre¬ 
sented for collection at the Clearing House — 40,750. yen 

In the above dempyo, the deposit with the Bank of Japan is the 
name of account. As for the items in Group b., the Yasuda Bank 
will make the following Transfer Dempyo, indicating that the total 
amount has been deposited with the Bank of Japan: 


TRANSFER DEMPYO 1 


Debit side 

A ccounts and pa7'ticulars 
Bills Discounted: 

#100, Mitsui & Co. - _ 
Osaka Branch: 

Bills for Collection 

#2 and #3_ 

Loan on Bill: 

#5, Sumitomo Bank- 
Call Loan: 

#12, Sanwa Bank -_ 


Date 


Credit side 

Amount Accounts and particulars Amount 

Deposit with the Bank of 
15,000. Japan:— 

Items Presented for 
collection at the Clear- 
6,000. ing House- 46,000. 


10 , 000 . 


15,000. 


46,000. 


46,000. 


3. Procedure of clearance at the clearing house 

When clearing hour comes, the representatives of all member 
banks gather together at the Clearing House and distribute the 
items for collection to each bank. Each representative then pre¬ 
pares a Clearing Balance Sheet (KORAN SASHIHIKI-HYO), 
debiting the total amount of items received under the name of each 
member bank. The credit side of the Clearing Balance Sheet has 
already been recorded by each representative at his own bank 
before he arrives at the clearing house. 2 The representative of 
each bank then calculates the balance from the Clearing Balance 
Sheet and prepares the Clearing Balance Slip (KOKAN SHA- 
GAKU HYO) and submits it to the clerk of the Clearing House. 

1 A separate Transfer Dempyo may be prepared for each of the debit accounts. 

2 See paragraph 2, Preparation for Clearing. 


90 







The Clearing Balance Slip shows the name of the bank; date; the 
total number of debit items and the amount; the total number of 
credit items and amount; and the difference between the debit and 
the credit amount. The clerk of the Clearing House then prepares 
the Total Clearing Balance Sheet of all member banks. This sheet 
shows the debit or the credit clearing balance of all member banks 
and its total debit and the total credit amount should always be 
equal. Otherwise, it means that one of the member banks has made 
a mistake in the clearing operation. 

Assuming in the above clearing operation, the Yasuda Bank has 
a debit balance of 25,000. yen on its Clearing Balance Slip (KOKAN 
SHAGAKU HYO), this is an indication that the Yasuda Bank owes 
that much to other member banks who have credit balances; and 
the amount will be deducted from the Current Account of the Ya¬ 
suda Bank with the Bank of Japan. On the other hand, if the result 
of clearing shows a credit balance of 25,000. yen on the Clearing 
Balance Slip of the Yasuda Bank, it means that member banks who 
have the debit balances owe 25,000. yen to the Yasuda Bank, and 
the Current Account of the Yasuda Bank with the Bank of Japan 
will be increased by that amount. Thus, all the clearing balances 
of member banks are settled through their Current Account with 
the Bank of Japan. 

4. Method of handling items received from the clearing house 

If, for instance, the Yasuda Bank in Tokyo received the following 
items from the member banks at the clearing house: 


a. Three checks #10, 11, 12, drawn by the custo¬ 

mer Yamada, received from the Mitsubishi 

Bank_ 6,000. yen 

b. Bank draft #8, drawn by the Yasuda Bank in 

Osaka and received from the Teikoku Bank_ _ 7,000. 

c. A promissory note #5, drawn by the customer 

Yamada, payable to Matsumoto and received 
from the Sanwa Bank_ 10,000. 

d. A bill for collection, payable by customer Kato 

and received from the Sumitomo Bank- 9,000. 


91 





the Yasuda Bank then makes the following Transfer Dempyo, and, 
regarding items c and d the customers are notified of the deduction 
of the amounts from their current accounts with the bank: 


TRANSFER DEMPYO 

Date 

Debit side Credit side 

Accounts and particulars Amount Accounts and particulars Amouni 

Deposit with the Bank of Osaka Branch Office: 

Japan: Draft #8, paid through 

Items for payment * Clearing House_ 7,000 

received from the Current Account: 

Clearing House __ 32,000. Yamada, check #10, 

11 and 12, paid 

through Clearing 

House_ 6,000. 

Yamada, Promissory 
note #5, paid 
through Clearing 
House_ 10,000. 

Kato, Bill for collec¬ 
tion paid through 
, Clearing House_ 9,000. 


32,000. 32,000. 


92 







X. METHODS OF CREDIT INVESTIGATION 


A. OVERDRAFT LOANS 

t 

As a rule the overdraft is regarded less profitable from the stand¬ 
point of a loaning bank than other types of loans. This privilege is 
granted to a limited number of customers whose credit standings 
are unquestionable. The Japanese methods of credit investigation 
are similar in many respects to those used in this country. The 
so-called THREE C principle; that is the character, the capacity, 
and the capital of the borrower are the basis of the credit rating. 
A stronger emphasis is placed on the character and capacity of the 
borrower than his capital. The Japanese banks as a general rule 
do not extend the overdraft privilege to a new customer. A person 
who applies for a Current Account is well investigated before he is 
allowed to open an account with the bank. When a customer applies 
for an overdraft loan, the bank will naturally be in a position to 
judge whether or not such a privilege should be granted. The 
biographical background, the personality, the character, and the 
business ability of’the applicant are considered. When the appli¬ 
cant is a legal person, the backgrounds, characters and the abilities 
of the directors of the corporation, the position of the corporation 
among a group doing similar business, and its earning power are 
well investigated and studied before the overdraft privilege is 
granted. These studies are known as the character side of the 
credit studies (JINTEKI SHINYO CHYOSA). On the other hand, 
the financial side of the credit investigation (BUTTEKI SHINYO 
CHYOSA) is by no means less important. Willingness alone can¬ 
not, in many cases, fulfill monetary obligations. Analysis and study 
of the financial side of the credit studies, require technical knowl¬ 
edge and this task is performed by the Credit Analysis Division. 

Usually Japanese banks have a policy designating what credit 
rating is to be given to a particular security when the bank is asked 
to make an Overdraft Loan on it. The credit rating on each of the 
securities is based on the numerous factors concerning the corpora¬ 
tion which issued the securities, the provisions contained in the 
securities, the fluctuation of the market price of the securities, and 
the like. All investigation and credit ratings on each of the securi¬ 
ties on which the bank may be asked to make a loan are done at the 
head office of the bank and passed on to the branch office and to their 
agencies for use as a guide in their loan operations. Another point 


93 


of importance is that the bank should know for what purpose the 
customer wants the loan and for how long. From the standpoint 
of a loaning bank, the overdraft loan should have the characteristics 
of rapid turnover; that is, it should make the loan at the end of eacli 
month when the general payment period comes and require the 
customer to repay the loan at the beginning of the following month 
when the customer has, in turn, collected the loans due him. 

B. COMMERCIAL BILLS DISCOUNTED 

The important points to be considered in the selection of com¬ 
mercial bills are safety and liquidity. The bills discounted at banks 
are in the majority unsecured. Therefore, the characters, the ca¬ 
pacities, and the capital of the applicant as well as the persons 
involved in the transactions should be carefully studied before the 
credit is extended. From the standpoint of weighing the above 
three elements in the extension of this type of credit, the Japanese 
banks generally stress the capital side of the borrower and other 
parties involved in the bill rather than the character or capacity. 

t 

The average current account balance of the applicant with the 
bank, the names, number, and reputation of the persons involved in 
the bills, their credit ratings according to the Commercial Credit 
Bureau (SHOGYO KOSHIN SHO), are considered. Whether or 
not the bills have been accepted for the payment by the payers are 
other important factors which require careful consideration before 
the bills are discounted. The amount of discount to be allowed each 
customer differs according to the credit rating of the customer, 
and banks usually conduct their own credit investigations in addi¬ 
tion to making use of the information supplied by Commercial 
Credit Bureaus. From the standpoint of the discounting bank, the 
first and the most important consideration is the credit standing 
of the applicant. Discounting a bill means lending money to a 
customer against the claim the customer possesses on the bill. 
Therefore, when a bill is about to be discounted, the customer trans¬ 
fers his claim to the bank by an endorsement of the bill. If a bill is 
dishonoured at maturity, the applicant has to pay the amount to the 
bank. The second important consideration, from the standpoint of 
the bank, is the credit standing of the payer. The good credit stand¬ 
ing of the payer will be a guarantee against unexpected financial 
loss on the part of the applicant after the bill has been discounted. 
The good credit standing of the payer provides safety, not only to 
the discounting bank, but also to the applicant. Therefore, when a 
discounting bank finds a customer who deals with a person whose 
credit standing is doubtful, it is the duty of the bank to warn the 
customer of the need for caution in trading with such a person. 


94 


Another important consideration from the standpoint of the 
discounting bank is that a bank prefers a bill of exchange over a 
tv o name promissory note. Furthermore the discounting bank 
itself prefers a bill which has more than one endorser. This is due, 
apparently, to the fact that all persons involved in the bill will be 
lesponsible for the settlement of the bill if the bill is dishonoured. 

C. LOANS ON BILLS 

The loans on bills are an accommodation loan, made generally 
for the purpose of undertaking a new commercial project or to 
expand an already existing project. The credit risks in this loan 
are much greater than that of the loans on commercial bills as the 
repayment of this loan depends largely upon the success or failure 
of the new venture. The loaning bank, therefore, requires special 
caution and studjr before the loan is given. Needless to say, Jap¬ 
anese banks made a thorough study not only of the character, the 
capacity, and the capital of the borrower but also matters which 
are expressed in the following questions: 

1. How is the borrower going to use the money and is it 
going to be used in a speculative venture? 

2. Is the maturity of the loan too long? Will the borrower 
be able to repay the money as contracted ? 

3. Is the project on which the money is to be used productive 
and profitable? 

4. Does the loan have a good collateral? Is it a good kind? 
Is it sufficient? What is the price movement of the se¬ 
curity? 

It is the general practice of Japanese banks not to lend money 
on bills without security, except in cases where the loan is guaran¬ 
teed by the high credit standing of a dependable person or corpora¬ 
tion. 

D. COLLATERAL AGAINST LOANS 

1. Rules governing the selection of collateral 

In the foregoing discussion, the importance of the THREE C 
principle as a basis for granting bank loans and the requirements 
for collateral to insure the repayment of the loan have been empha¬ 
sized. From the standpoint of a loaning bank, it is important to 
consider whether the collateral in question is suitable and adequate 
for the purpose for which it is submitted to the lender. According¬ 
ly, the Japanese banks usually have set rules as to the preferability 
of a collateral for a given loan. The basic rules which the Japanese 
banks follow for the selection of collateral are enumerated accord¬ 
ing to their order of importance as follows: 


95 


1. The collateral must be readily marketable. 

2. The collateral must require a minimum of attention and 
expense for its safekeeping. 

8. The collateral must have a minimum of price fluctuation. 

On the basis of the above rules, the kinds of collateral which the 
Japanese banks prefer most are the government bonds, corporate 
bonds and stocks. Commodities come second on the preferred list 
and the real estate properties come last. 

2. Securities (YUKA SHOKEN) 

a. Kinds of securities . A Japanese authority on bank account¬ 
ing named HIROSHI MURAKACHI defines security as “a certifi¬ 
cate which indicates a definite sum of monetary claim or claims 
on cargo and like material which has a monetary value and which 
is freely negotiable either by endorsement or by other methods.’’ 
In order to simplify the presentation of the kinds of security 
(YUKA SHOKEN), the following table is presented: 

(1) Certificate of Real Right (BUKKEN TEKI SHOKEN) : 

(a) Bill of Lading (FUNANI SHOKEN). 

(b) Cargo Exchange Certificate (KAMOTSU HIKIKAE SHO). 

(c) Warehouse Certificate (SOKO SHOKEN) : 

1 . Warehouse Certificate of Receipt (AZUKARI SHO). 

2. Warehouse Collateral Certificate (SHICHIIRE 

SHOKEN). 

3. Warehouse Goods Certificate (KURANI SHOKEN). 

(2) Certificate of Obligation (SAIKEN TEKI SHOKEN) : 

(a) Certificate which substitutes for Currency (KAHEI NO 

DAIYO-O NASU MONO) : 

1. Checks (KOGITTE). 

2. Bills (TEGATA). 

3. Convertible Paper Money (TAKAN-KEN). 

( b) Certificates which do not substitute for Currency (KAHEI 

NO DAIYO-O NASAZARU MONO) : 

1. Obligations Issued by Government Authorities 
(KOSAI SHOSHO) : 

(a) National Government Obligations (KOKU 
SAI) : 

(1) Government Bonds (KOSAI SHOSHO). 

(2) Treasury Certificate (KOKKO 

SAIKEN). 

(3) Rice Bill (BEIKOKU SHOKEN). 

(4) Silk Bill (KIITO SHOKEN). 

(5) Ministry of Finance Bill (OKURA-SHO 

SHOKEN). 


96 


(b) Local (Prefectural and Municipal) Bonds 
(CHIHO SAI). 

2. Corporation Bonds (SHASAI KEN). 

(3) Certificate of Ownership of Corporation (SHAIN-KEN 
TEKI SHOKEN) : 

Stocks (KABU KEN). 

b. Government bonds . Japanese Government bonds or national 
bonds are generally issued in “payable to bearer” form (MUKIMEI 
SHIKI). This kind of bond is regarded by law as movable property, 
and the holder has legal claims to it 1 and no endorsement, or other 
legal procedure is necessary for its transfer. When a borrower pre¬ 
sents national bonds as collateral, he is required to submit a certifi¬ 
cate of collateral deposit to the lending bank. There is another type 
of government bond, the registered national bond, which is payable 
to a specific person and requires special registration showing the 
establishment of SHIKKEN on the security by the lender. This is 
done by presenting a written statement of the intention to transfer 
to a dealer of national bonds with the signature and seal of the 
lender and the borrower. Thus the transfer of registered national 
bonds is subject to the National Bond Law rather than the regu¬ 
lations relating to the establishment of collateral in the Japanese 
Civil Code. The method of establishing SHIKKEN on a registered 
municipal bond is subject to the rules and the regulations provided 
in the Japanese Civil Code. The lender of the money on the bond 
must notify the issuing organization of the establishment of 
SHIKKEN in a documentary form with the date of establishment, 
or obtain permission from the same if it is required. 

c. Corporate bonds. There are two types of corporate bonds, one 
of which is a bond issued by ordinary commercial corporations, sub¬ 
ject to the rules and regulations of the Japanese Commercial Code, 
the other of which is a bond issued under special bank laws, such 
as laws relating to the issue of bonds by the Hypothec Bank of 
Japan and the Industrial Bank of Japan. The former is com¬ 
monly known as SHASAI while the latter is known as SAIKEN. 
The SHASAI may either be secured, guaranteed or unsecured. 
When the issue of SHASAI is secured, it is done through an Accept¬ 
ance Company (JUDAKU KAISHA) after a trust agreement has 
been made between the issuing corporation and the Acceptance 
Company. The Acceptance Company then holds the claim on the 
mortgage or the collateral on behalf of all the bond (SHASAI) 
holders. The SHASAI is usually issued in a bearer form, but 
when the SHASAI is payable to a specified person, the lending 
bank must establish SHIKKEN on the bonds by registering them 


1 Japanese Civil Code, Article 178. 


97 



in the bondholder’s Ledger Book of the issuing corporation, and 
the name of the lending bank must be recorded on the bond. 1 

Corporation stocks are usually issued payable to a specified per¬ 
son. The Japanese Commercial Code, however, provides that when 
the subscription on a stock is fully paid, the owner of the stock 
can request the issuing corporation to have the stock changed to 
a bearer form. 2 As is true in the United States, Japanese cor¬ 
porations issue preferred stock (YUSEN KABU) as well as com¬ 
mon stocks (FUTSU KABU). When the corporate stocks are 
offered as collateral for a loan, the lending bank examines the 
nature of the stock, the provisions contained in them, and the 
credit standing of the issuing corporation. The general practices 
of Japanese banks indicate that the amount of loan on stocks 
usually run between 60 percent to 70 percent of the market price 
of the collateral stocks. When the lending bank finds that collateral 
is insufficient for a loan after a loan has been made, the borrower 
will be asked to deposit additional collateral. As to the transferring 
of claims on the collateral stocks to the lending bank, the Japanese 
Civil Code specifically provides that even when the stocks are regis¬ 
tered in a specific person’s name, the SHIKKEN on the stocks by 
the lender is to be regarded as established when the original owner 
of the stocks passes the stocks over to the lending bank. 3 How¬ 
ever, the Japanese Supreme Court has ruled that in order to estab¬ 
lish the lending bank’s claim for a dividend on the stocks, the lend¬ 
ing bank is required to notify the issuing corporation of the fact 
that the ownership of the stocks has been transferred and obtain 
this acknowledgment. 4 The general practice followed in the trans¬ 
fer of corporate stocks from the borrower to the lender requires 
the borrower to submit a power-of-attorney (ININJO) and an 
agreement of collateral deposit (SHICHIIRE SHODAKU SHO) 
to the lending bank. 

3. Merchandise 

From the standpoint of bank collateral, merchandise is less pref¬ 
erable than securities, due to the obvious reason that no bank em¬ 
ployees are expected to be an expert as to the grades, qualities, and 
the price fluctuations of various commodities. Furthermore, it 
involves cost in handling and safe-keeping, and may not be readily 
marketable as in the case of securities. However, when a bank 
finds it necessary to take merchandise as collateral, it examines 
carefully the credit standing of the warehouse which holds the 

1 Japanese Commercial Code, Article 307. 

2 Japanese Commercial Code, Article 227. 

3 Japanese Civil Code, Article 364, paragraph 2. 

4 Japanese Supreme Court, 15 November 1928. 

98 



merchandise. As a general rule, banks prefer the following kinds 
of merchandise: 

a. Raw material, such as rice, wheat, cotton, wool, gold or silk 
cocoon, etc. are easier to dispose of when necessary. Furthermore, 
their market price can be ascertained easily as compared with 
manufactured goods. Goods which are semi-processed, such as 
cotton, woolen and silk threads, sugar, flour and rayon, are also 
preferred over manufactured goods. 

b. Merchandise which is traded on the commodity market, such 
as rice, cotton, cotton threads, silk threads, sugar and rayon. 

c. Merchandise which has a stable price. 

cl. Merchandise which is not perishable and not subject to de¬ 
terioration. 

e. Merchandise which is not behind the seasonal demand. 

After careful consideration on the foregoing points, the bank 
decides the amount of money to be loaned on the merchandise in 
question. When the commodity is listed on the commodity market, 
the commodity market price will be used as the basis of deciding 
the loanable amount, otherwise a commodity expert has to be em¬ 
ployed to evaluate the merchandise in question. Credit extension 
by Japanese banks on merchandise varies from 60 to 70 percent of 
the market price. When merchandise is secured as collateral, it is 
regarded as movable property. The Japanese Civil Code provides 
that the person in possession of SHIKKEN on movable property 
must be in possession of the same in order to exercise it over a 
third party. However, an agent can keep the movable property 
for his principal who possesses the SHIKKEN on the property. 1 
Thus, a warehouse operator can keep the merchandise for a lending 
bank who has a SHIKKEN on the commodity. 

4. Warehouse certificates 

There are three different kinds of warehouse certificates; the 
Certificate of Warehouse Receipt (AZUKARI SHO), the Collateral 
Certificate (SHICHIIRE SHOKEN), and the Warehouse Goods 
Certificate (KURANI SHOKEN). The Certificate of Warehouse 
Receipt and the Collateral Certificate are issued by the warehouse 
operator under a so-called Double Certificate System (FUKUKEN 
SEI). Under this system, both certificates represent the same 
commodity in the warehouse. The Certificate of Warehouse Re¬ 
ceipt is issued to the owner of the merchandise to enable him to 
sell the merchandise to another businessman, while the Collateral 
Certificate is issued to enable him to borrow money from a bank. 
When a bank lends money to the owner of merchandise in a ware- 

1 Japanese Civil Code, Articles 3f>2 and 181. 


99 



house, the owner is required to endorse the Collateral Certificate 
showing the amount of money borrowed. The bank sends the Col¬ 
lateral Certificate to the warehouse operator and he must record 
the loan transaction on the warehouse Ledger Book. The ware¬ 
house operator returns the Collateral Certificate to the bank. The 
lending bank can then claim the SHIKKEN on the Collateral Cer¬ 
tificate. On the other hand, the borrower is required to record the 
amount of money borrowed from the bank, its interest rate, and 
maturity of the loan on the Certificate of Warehouse Receipt 
(AZUKARI SHO) with the borrower's signature and seal. The 
reason for this recording is to protect an innocent purchaser of 
the Certificate of Warehouse Receipt. The warehouse operator, 
on the other hand, will not give the merchandise in custody to 
anyone who does not present both the Certificate of Warehouse 
Receipt and the Warehouse Collateral Certificate. Thus, the lend¬ 
ing bank will be well protected. 

There is in wide use, however, a Single Certificate System under 
which a Warehouse Goods Certificate (KURANI SHOKEN), is¬ 
sued by the warehouse operator, is used in place of the aforemen¬ 
tioned documents. The Warehouse Goods Certificate (KURANI 
SHOKEN) is issued by the warehouse operator when so requested 
by the customer. 1 This certificate functions in a way similar to 
that of the Cargo Exchange Certificate (KAMOTSU HIKIKAE 
SHO), and the rules and regulations regarding the Certificate of 
Warehouse Receipt are also applied 2 to this certificate. Further¬ 
more, a lending bank can easily establish SHIKKEN on the cer¬ 
tificate. The Warehouse Goods Certificate contains a description 
of the goods in custody by the warehouse; such as, the name, the 
quantity, the quality, and the method of packing, the name and 
trade mark of the depositor, the place of storage, the charge for 
storage, the period of storage, the amount and period of insurance, 
the name and trade mark of the insurance company, and the date 
and place of the certificate issued. The owner of the goods en¬ 
dorses the certificate and transfers it to the lending bank when 
the bank lends money on the goods. Thus, the bank will have 
SHIKKEN on the goods. The bank in turn notifies the warehouse 
operator of the fact that SHIKKEN has been established on the 
goods. When the borrower from the bank wishes to withdraw 
a part of the merchandise, he makes a request to the bank accom¬ 
panied by a part payment of the loan. The bank requests the 
warehouse company to give part of the merchandise to the bor¬ 
rower. A prearrangement is usually in effect between the lending 

1 Japanese Commercial Code, Article 627, paragraph 1, 

2 Japanese Commercial Code, Article 627, paragraph 2. 


100 



bank and the warehouse operator providing that the borrower of 
the loan may withdraw part of the merchandise from the warehouse 
from time to time. This is usually done when the bank establishes 
SHIKKEN on the warehouse goods certificate by signing a part 
withdrawal contract (UCHIDASHI KEIYAKU) between the bank 
and the warehouse operator. When part of the merchandise is 
withdrawn by the borrower, the bank makes a record of the name 
and the quantity of the merchandise withdrawn on the warehouse 
goods certificate and the warehouse operator does the same. The 
money received by the bank from the borrower for the payment of 
the commodity partly withdrawn will either be kept in the Special 
Deposits Account (BETSUDAN YOKIN KAN JO) until the loan 
is fully paid, or the amount is deducted from the loan account. 
In either case, the borrower is entitled to a refund of the interest 
on the amount partly paid from the day the part payment is made 
to the day when the loan matures. In case the part payment is 
kept in the Special Deposit Account, there is a danger that the bank 
may lose claim on the deposit if the borrower should become bank¬ 
rupt. Therefore, the lending bank usually deducts the part pay¬ 
ment from the loan account as a part settlement. 

5. Real estate or immovable property mortgage 

(FUDOSAN TAMPO) 

The immovable property in this discussion refers to land and 
buildings. As a rule, most of the Japanese commercial banks do 
not prefer real estate mortgage due to the obvious reason that real 
estate is difficult to dispose of when the borrower defaults on pay¬ 
ment of a loan. Futhermore, real estate requires expenditure for 
its maintenance, and the turnover of loans on real estate is slower 
than those made on commercial papers. Nevertheless, there are 
cases which necessitate the acceptance of real estate as a mortgage, 
and in such cases, the banks usually apply the following rules: 

a. Land. (1) Determine whether there are other mortgages on 
the land. It is also important to investigate whether there are any 
tenant rights or any other rights established on the land. 

(2) Transportation facilities to the location of the land. 

(3) The possibility of future development of the land. 

(4) The utility value of the land. 

(5) Present and possible future income from the land. 

b. Building. (1) Determine whether there is any other mort¬ 
gage already established on the building, and investigate the char¬ 
acter and credit standing of the person who occupies the building. 

(2) The date of the building. 

(3) Location of the building. 

(4) Structure of the building. 


101 


(5) Kind of building; residential, commercial, or factory. 

(6) The amount of space occupied by the building. 

When a bank secures real estate as a mortgage, the lending bank 
may establish SHIKKEN on the real estate either by establishing 
TEITO KEN (Mortgage Right) or by NETEITO KEN. 1 Accord¬ 
ing to the Japanese Civil Code, the TEITO KEN is a lender’s pre¬ 
ferred real right over others on the repayment of a loan on the 
real estate which has been submitted by the borrower as a mortgage 
without changing the possession. Thus, the mortgagor possesses 
the real estate, uses it, and receives the income from it. The 
TEITO KEN can also be established on tenant rights as well as 
on other rights on the land. In order to have the right on the mort¬ 
gage effective against a third party, the TEITO contract should 
be made out and registered in an attested form. The lending bank, 
on the other hand, may establish NETEITO 1 on the real estate. 
If a maximum amount of loan is established on the mortgage when 
the contract is signed, the borrower may borrow any amount and 
any number of times within the maximum limit. The difference 
between the TEITO and the NETEITO is that in the case of the 
former the mortgage is established for a definite sum borrowed 
and the lending bank’s SHIKKEN on the mortgage will be ter¬ 
minated when the debt is paid by the borrower, unless there is a 
special provision to the contrary. In the case of NETEITO, how¬ 
ever, a maximum amount of loan is set and the borrower may 
borrow any amount for any number of times providing the maxi¬ 
mum amount borrowed does not exceed the amount contracted 
for. He can pay back in part or in full at any time during the 
period of the NETEITO contract. The NETEITO contract may 
be made for a definite or indefinite period. Japanese banks com¬ 
monly make the NETEITO contract effective for an indefinite 
period with the insertion of a clause enabling the lending bank to 
cancel the contract whenever it so desires. When a mortgage is 
based on the NETEITO contract, it should be so stated at the time 
of registration for the establishment of a claim on the mortgage. 
Otherwise, it will be regarded as a TEITO contract, and the lend¬ 
ing bank will have claim on the mortgage only to the extent of the 
loan outstanding at the time of registration of the contract. If a 
mortgage is on a building, an appropriate amount of fire insurance 
is usually carried on the building for the protection of the lending 
bank. 


1 Refer to the explanation of NETEITO KEIYAKU in Overdraft, p. 41, 

102 



XI. WARTIME CHANGES 


A. CHANGES IN THE BANKING STRUCTURE 

The measures the Japanese government took up to 1941 which 
related to financial organizations had two distinct purposes; one 
was to control the financing of capital funds and the other to con¬ 
trol the financing of working capital to industries. The Temporary 
Funds Adjustment Law of 1937 was a device aimed at preventing 
the flow of capital funds to nonstrategic industries and to provide 
adequate funds to the industries engaged in the national defense. 
On the other hand the Decree on the Application of Funds of 
Banks, etc. of October 1940, which became effective 1 January 
1941 was in reality an order calling for the compulsory financing 
of strategic industries and restricting banks from making loans 
for working capital to nonstrategic industries beyond designated 
limitations. 

Other steps taken by the government were chiefly directed toward 
the raising of adequate funds for armament industries and the 
absorption of government bonds. To achieve these aims, it took 
various measures; such as, the simplification of banking structure, 
creation of new financial organs and controlling bodies, and a more 
effective system of financing armament industries. 

1. Bank amalgamations 

The various measures taken by the Japanese Government up to 
the end of 1941 and the subsequent establishment of the National 
Financial Control Association completed the legal basis for the 
total control of every activity of the financial organizations. The 
structural changes which took place in these institutions indicate 
that the government made great strides toward their simplification. 

a. Amalgamation of ordinary banks. When the Ordinary Bank 
Control Association was organized in May 1942, there were 13 
large city banks classified in this group. Among them were the 
7 largest banks; namely, Sanwa, Yasuda, Sumitomo, First, Mitsu¬ 
bishi, Mitsui, and One Hundred. On 30 June 1941, the principal 
assets and liabilities of these seven banks were: 


103 



(In Million Yen) 




Total 

Deposits 

Discounts 

Security 


assets 


and loans 

holdings 

Sanwa _ 

3,034 

2,793 

1,499 

1,195 

Yasuda 

___ 2,937 

2,628 

1,551 

1,047 

Sumitomo 

_2,927 

2,725 

1,787 

840 

First 

2,564 

2,342 

1,475 

808 

Mitsubishi 

_ 2,106 

1,879 

1,051 

699 

Mitsui 

2,031 

1,773 

1,122 

577 

One Hundred 

_ _ 1,623 

1,518 

854 

517 


17,222 

15,658 

9,339 

6,683 

Besides the above big 7, the other larger city banks in Japan show 

their total assets, 

deposits, discounts and loans and security hold- 

ings as of 30 June 1941 as follows 

• 

• 




(In Million Yen) 




Total 

Deposits 

Discounts 

Security 


assets 


and loans 

holdings 

Nomura Bank 

910 

856 

589 

167 

15th Bank 

445 

303 

196 

178 

Kobe Bank 

_ 454 

417 

202 

186 


Under the auspices of the National Financial Control Association, 
the First Bank, the Mitsui Bank and the Fifteenth Bank were 
merged into a new bank called the Teikoku Ginko (Imperial Bank) ; 
the One Hundred Bank was merged into the Mitsubishi Bank; the 
Showa Bank, the Japan Day and Night Bank, and the Third Bank 
became part of the Yasuda Bank. Furthermore, the Nomura Trust 
Company was merged into the Nomura Bank. 

The May, 1944 issue of the Nihon Hyoron shows the principal 
assets and liabilities of the big five banks and all banks except the 
Bank of Japan as follows: 

Table Showing Position of the Big 5 

(In Million Yen) 

Deposits Loans Securities 

End of March 1944 28 February 1944 28 February 1944 


Teikoku_ 6,330 5,016 2,483 

Yasuda_ 5,728 3,300 2,419 

Mitsubishi_ 5,629 2,979 2,315 

Sanwa - 4,820 2,861 1,837 

Sumitomo - 4,745 3,024 1,745 


27,252 17,180 10,799 

All Banks (Ordinary, Savings, and Special) except 
Bank of Japan — 60,625 35,935 34,710 


104 
























The amalgamation of banks extended also into the sphere of the 
local banks where the government was interested in limiting their 
numbers to one or two for each prefecture. In 1937 there were 377 
Ordinary Banks which included these local banks. By May 1942, 
when the National Financial Control Association was organized, 
this number had decreased to 163, of which thirteen were ordinary 
banks and 150 were local banks. A further reduction had taken 
place by April 1944, for there were then only 88 ordinary banks in 
all, including the local banks. In order to offset the disadvantage 
caused by these drastic mergers, which left ordinary and local 
bank facilities less available to the Japanese public, the government 
issued an ordinance on 20 May 1943 authorizing these banks to 
apply for permission to create savings and trust departments or 
incorporate other savings banks and trust companies as their sub¬ 
sidiaries. This is obviously a significant change in the traditional 
banking structure of Japan. Many ordinary and local banks took 
on the additional functions of savings banks and trust companies. 
They began to operate on 1 August 1943. 

b. Amalgamation of Savings Banks. At the end of December 
1941 the savings banks held 5,542 million yen or 11.6% of the total 
deposits of all banks, excluding the Bank of Japan. However, a 
comparison between the savings banks and Postal Savings System 
shows that the former held 35.2% of the total 15,511 million yen 
held by these two institutions. 

The position of the savings banks’ deposits in relation to those of 
other banks and the postal savings system in 1942 to 1944 is shown 
in the following tables: 

Deposits of all Banks 
(In Million Yen) 

End of February 19A3 End of February 19Ah 

Special Banks 1 _ 3,571 4,541 

Ordinary Banks 2 _ 34,030 43,952 

Savings Banks_ 7,790 9,011 


45,391 57,504 

Comparison Between the Savings Banks and Postal Savings 

(In Million Yen) 



Savinas banks 

Postal savings 

Total 



Percent 

Percent 




to 

to 



Deposits 

Total 

Deposits Total 

Total Percent 

2/28/42 

_ 5,761 

37.7 

9,522 62.3 

15,283 100 

2/28/43 

_ 7,790 

37.8 

12,795 62.2 

20,585 100 

The above tables show that the savings banks 

held 17 percent at 


1 Bank of Japan figures are not included. 

2 Local banks’ figures are included. 

105 








the end of February 1943, and 16 percent at the end of February 
1944 of the deposits of all banks except the Bank of Japan. The 
position of the Savings Banks in relation to the Postal Savings 
System shows that, at the end of February 1942, the Savings Banks 
held 37.7 percent of the total, while at the end of February 1943, 
they held 37.8 percent of the total deposits of both institutions. 
When these ratios are compared to those of December 1941, the 
deposits with the savings banks show a substantial increase in 
contrast to other banks and the Postal Savings System. 

In 1937, there were 72 Savings Banks in Japan. At the time 
when the Savings Banks Control Association was organized, this 
number was reduced to 69. By April 1944 this figure had dropped 
to 29. Savings banks, as in the case of Ordinary Banks were also 
dominated by the powerful few. Among the 29 Savings Banks, the 
Fudo Savings Bank, the Tokyo Savings Bank, the Yasuda Savings 
Bank and the Naikoku Savings Bank in Tokyo city; the Osaka 
Savings Bank, the Nippon Mutual Savings Bank and the Settsu 
Savings Bank in Osaka and the Nippon Savings Bank in Nagoya 
were the largest ones. 

Evidently the Japanese government had been considering the 
possibility of abolishing the savings banks, for on 4 January 1945, 
the Minister of Finance announced that the government decided to 
retain the savings banks in view of their usefulness in absorbing 
small funds. It was also revealed that “an agreement was reached 
regarding the establishment of one large savings organ through 
the merging of the large savings banks in the respective cities .. 
The following day, the 9 savings banks in Tokyo, Osaka and Na¬ 
goya, mentioned above, decided to merge according to the agree¬ 
ment. The newly amalgamated savings bank will be called the 
Japan Savings Bank (NIPPON CHOCHIKU GINKO) and its de¬ 
posits will amount to nearly nine billion yen, which would be the 
greatest total deposits held by any single Japanese financial institu¬ 
tion. As to the government policy relating to the savings banks 
in other areas, all savings banks are to merge either into ordinary 
or local banks or merge within themselves, with the ultimate aim of 
having only one large savings bank in Japan operating with as 
many branches as necessary throughout the country. 

c. Bank reorganization. (1) The Bank of Japan. A new law 
promulgated on 4 February became effective on 1 May 1942. The 
new law modified basically the corporate structure of the bank, 
which was defined as a special institution “administered exclu¬ 
sively for the accomplishment of national aims.” The capital of 
the bank was raised from 60 million yen to 100 million yen and 
the law authorized the Japanese government to become the major- 


106 


ity shareholder by investing 55 million yen in the bank. No pro¬ 
visions were jnade in the law as to the shareholders’ meeting or 
their right to nominate officials and pass upon important matters. 
I he rights ot the former shareholders on matters of management 
and control of the bank were completely divested and, in fact, they 
were reduced to the position of preferred shareholders. The func¬ 
tions of policy making were definitely vested in the Minister of 
Finance, who was empowered to issue instructions on the man¬ 
agement of the bank and whenever necessary and essential for the 
attainment of national objectives, he is empowered to order the 
bank to perform necessary operations and to amend its status and 
regulations. In short the new law made the bank a complete state 
organ in name as well as in fact. The staff of the bank was given 
the status of personnel engaged in a public function. The size 
of the staff was determined by Imperial decree. One of the notable 
changes undertaken by the Bank of Japan, after its reorganization, 
is its complete control over the foreign exchange business which was 
formerly carried on by the Yokohama Specie Bank. It also under¬ 
took a systematic coordination of the foreign activities of the cen¬ 
tral banking institutions in the Japanese dominated countries; 
namely, the Central Bank of Manchu, Bank of Mongolia, Federal 
Reserve Bank of China, Central Reserve Bank of China, Banque 
de l’lndochine, Central Bank of Thailand and Central Bank of 
Burma. 

In the middle of April, 1945 it was revealed that “In an effort 
to simplify and strengthen its administrative and business func¬ 
tions” the Bank of Japan undertook its internal reorganization. 
The former one Office, three Departments and eleven Bureaus were 
reduced to one Office, three Departments and eight Bureaus; namely 
the Office of the Secretary (HISHO SHITSU) ; Personnel Depart¬ 
ment (JINJI BU), General Affairs Department (SOMU BU), 
and research Department (CHOSA BU) ; and the Bank Notes 
Issue Bureau (HAKKEN KYOKU), 1 Business Bureau (EIGYO 
KYOKU), National Treasury Bureau (KOKKO KYOKU), Na¬ 
tional Bonds Bureau (KOKUSAI KYOKU), Foreign Affairs Bu¬ 
reau (GAIJI KYOKU), Funds Regulation Bureau (SHIKIN CHO- 
SEI KYOKU), Documents Bureau (BUNSHO KYOKU) and Con¬ 
trol Bureau (TOSEI KYOKU). It is revealed that the Control 
Bureau mentioned herein is the new creation taking the place of 
the old Investigation Bureau (KOSA KYOKU) and that the new 
Control Bureau will take over the functions of financial control 
of all financial organizations which had been the functions of the 

1 The Japanese word KYOKU in this case is translated as Bureau, while in p. 21 the word 
KA is also translated as Bureau. This is due to the difference in the organizational structure of 
the Bank of Japan and other banks. 


107 



National Financial Control Association (ZENKOKU KINYU 
TOSEI KAI). Thus the Bank of Japan will be the final authority 
in matters relating to financial control and the policy of future 
financial control will be pushed under the united leadership of 
the Finance Minister, the Bank of Japan and the big metropolitan 
banks. The National Financial Control Association, as a result 
of this new development, will act as a general liaison machinery 
for the various financial organizations. 

(2) The Yokohama Specie Bank . It was reported that this 

bank undertook a complete reorganization of its head office in July 
1943. This reorganization is attributed to the changes which had 
taken place in the bank’s relation with the Bank of Japan and its 
position in international markets. The bank abolished its Foreign 
Exchange, Domestic and Foreign Departments and set up four 
new departments; General Affairs, Southern Region Affairs, East 
Asia Affairs and Foreign Affairs. The General Affairs Depart¬ 
ment was charged with general planning loans, investments and 
exchange; the East Asia Affairs Department deals with branches 
and businesses in Japan, Manchukuo, Mongolia, Northern, Central 
and Southern China and Hongkong; the Southern Region Affairs 
Department deals with branches and businesses in Thailand, Indo- 
China, the Philippines, Java, Sumatra, Celebes, Malaya and Burma; * 

and the Foreign Affairs Department deals in businesses with the 
other countries. It was also reported that the Bank of Japan took 
over complete control of the foreign exchange business from the 
Yokohama Specie Bank in the spring of 1943. 

In the early part of April, 1945, however, another internal re¬ 
organization seemed to have taken place. The three departments 
mentioned above; i.e., the East Asia, Southern Region and the 
Foreign Departments are said to have been abolished and a new 
Overseas Department (KAIGAI BU) created in their places. The 
main reason for this change is ‘To simplify its business operations.” 

(3) Mitsubishi Bank. On 28 March 1944 the main office of the 
Mitsubishi Bank was also reorganized. Although no detailed in¬ 
formation on the reorganization is available, the former system 
of 10 Departments was abolished and the new six department 
system was adopted. In the meantime, the Foreign Exchange 
Department was also abolished and in its place a new Foreign 
Exchange Bureau was created under the Operating Department. 

2. Wartime Finance Bank (SENJI KINYU KINKO) 

This bank was created in April 1942 with a capital of 300 mil¬ 
lion yen, of which 200 million yen was subscribed by the govern¬ 
ment and 100 million yen by banks. Half of the capital was paid 


108 


lip at the time of organization and the rest was to be paid in 1944. 
it was also authorized to issue debentures up to ten times its paid 
up capital and the government was to guarantee the issues. The 
government also assumed the responsibility for guaranteeing an 
annual dividend of 5 percent on the private portion of the paid 
up capital and if any losses were sustained in the operation, the 
government was to compensate these losses. The main purposes 
for organizing this bank were: 

1. To finance the vital war industries which for some rea¬ 
sons could not be financed by ordinary financial organi¬ 
zations. 

2. To finance the vital war industries in which the public 
was unwilling to invest. 

3. To maintain the stability of the security market. 

In the early period of its existence, it more or less devoted itself 
to the financing of small, new war industries. Later it expanded 
its activities to many large armament industries. In March 1943 
this bank took over the main burden of financing the establish¬ 
ment of and the expansion of the Wooden Ship construction com¬ 
panies. The prevailing information discloses that the amount 
of outstanding loans made by this bank in October 1942 totaled 
400 million yen and that this had increased to 800 million yen at 
the end of November 1943. 

In an article written by the Masaichi Nishizaki, Chief of the 
Finance Department of the Wartime Finance Bank, published 
in the May 1944 issue of Nihon Hyoron it is noted: 

“According to the investigation made by the Toyo Keizai Shimpo, 
the total capital funds used by the 7 aircraft industries in the first 
fiscal half year of 1943 amounted to 3,211 million yen. Of this 
amount, 1,703 million yen were in Temporary Receipt Funds (KA- 
RIUKE KIN) in which the Advances (MAEWADASHI KIN) 
was included.” 

The Advances mentioned here are the advances made by the gov¬ 
ernment to the aircraft industries through the Army and Navy. 
This fund is kept in the Bank of Japan or its agencies. 1 

3. The National Financial Control Association 

This organization is the central body for controlling all financial 
organizations in Japan. It was organized by Imperial Ordinance 
#440 on 17 April 1942 under the authority of Article 18 of the 
National Mobilization Law. Prior to the formation of this organi¬ 
zation, there was the National Financial Consultation Association 
(ZENKOKU KINYU KYOGI KAI) under which there were many 
associations, organized according to the type of business engaged 


1 Imperial Ordinance #584, October 9, 1937 
Minister of Finance Ordinance #39, July 9, 1941 
Minister of Finance Ordinance #44, July 28, 1941 


109 



in. These organizations, however, were considered as juridical 
persons only under the civil law, and the government found it diffi¬ 
cult to enforce its policies on them. 

At the time the association was organized, the following control 
associations were under the Control Association According to 
Types (GYOTAI BETSU TOSEI KAI), which was in turn, under 
the National Financial Control Association: 


Names Date established Numbers 


1. KAN-NO Banks Fi¬ 

nancial Control 
Association 1 _ 

2. Ordinary Banks Con¬ 

trol Association _ _ 

3. Local Banks Control 

Association _ 

4. Savings Banks Con¬ 

trol Association _ _ 

5. Trust Companies 

Control Associa¬ 
tion _ 

G. Life Insurance Com¬ 
panies Control 
Association _ 

7. Mutual Financing 

Companies Control 
Association _ 

8. Acceptance 

Companies Control 
Association _ 

9. Urban Credit Coop¬ 

eratives (SHIGAI 
CHI SHINYO KU- 
MIAI) Control 

Association _ 

10. Credit Cooperatives 
Control Associa¬ 


5/14/42 

6 Banks 

5/11/42 

13 Banks 

• 

5/11/42 

150 Banks 

5/13/42 

69 Banks 

5/12/42 

21 Companies 

5/14/42 

27 Companies 

5/13/42 

160 Companies 

5/12/42 

8 Companies 

5/14/42 

291 Cooperatives 


tion (KUMIAI 
KINYU TOSEI 

KAI) _ 5/30/42 1 Bank (Chest) and 

47 Cooperatives 


There were three more main groups under the National Finan¬ 
cial Control Association; namely, the group representing the 


1 KAN-NO refers to the NIHON KANGYO GINKO 
GINKO (Agriculture and Industrial Bank). 


(Hypothec Bank of Japan) and NOKO 


no 








Special Banks, except the Bank of Japan, the Local Financial 
Consultation Association (Korea, Taiwan, and Karafuto), and 
the Short Term Funds Cooperative Control (Call Loans and Bill 
Brokers). 

It is believed that the organizational structure of the association 
has undergone several changes since its formation. Although a com¬ 
plete picture of its present status is not available, it is reported that 
the Hypothec Bank of Japan after it had taken over the Agriculture 
and Industrial Banks operating in Aichi, Ibaraki, Okayama, Kana- 
gawa, and Fukushima prefectures, joined the National Financial 
Control Association. The Ordinary Bank Control Association, 
which had 13 members when it was formed, was also broken up 
following the mergers of several large banks. The live big ordinary 
banks; namely Teikoku, Mitsubishi, Yasuda, Sumitomo, and Sanwa 
joined the National Financial Control Association. The remaining 
ordinary banks joined with the local and savings banks and formed 
the single Bank Control Association. 

Article 8, Chapter 3 of the Articles of Association for the Na¬ 
tional Financial Control Association, relating to the functions of 
the association and their execution, provides for: 

1. Participation in the formulation of the government’s plan 
relating to finance. 

2. Instruction and control of financial organs on matters 
relating to their absorption of savings and the utiliza¬ 
tion of the same. 

3. Hastening the adjustment of the financial organizations. 

4. The promdlion of efficiency within financial organiza¬ 
tions. 

5. Hastening the closer collaboration between industries 
and financial institutions. 

6. Conducting research and surveys in matters relating to 
finance. 

7. Undertaking other necessary projects (JIGYO), besides 
the functions mentioned above, to realize and accom¬ 
plish the purpose of this organization. 

The above provisions indicate the broad and dictatorial powers 
this association possesses over all financial organizations. As to 
the utilization of funds by the financial institutions, Provision 4, 
Article I, Ministry of Finance Order #389 of 2 July 1942 states 
that the president of the association is empowered to: 

“Instruct a financial organization the necessary procedures 
for handling a transaction when it is engaged in financing a 
certain industry in cooperation with other financial organi¬ 
zations.” 

This provision indicates a new trend of financing war industries 


111 


which up to that time was not common. It is believed that until the 
spring of 1942, the local banks were mainly devoted to the absorp¬ 
tion of savings rather than to active participation in the financing 
of armament industries. In May 1942 the National Financial 
Control Association raised the allocation of corporate debenture 
subscriptions for the local banks and directed them to advance 
funds to the Industrial Bank of Japan, and in March 1944 a local 
banks’ syndicate was formed for the same purpose. 

Provision .#5 of the Order #389 further empowers the presi¬ 
dent of the Association to regulate interest rates on deposits, 
savings deposits and on loans, commissions on bank drafts, col¬ 
lections and other banks’ services, and the methods and provisions 
of making loans, collaterals on loans and insurance premiums. 
The latest information available on this organization is that in the 
middle of April 1945, when the Bank of Japan had undergone an 
administrative reorganization, the controling function of the all 
financial organizations which was performed by this organization 
was delegated to the Control Bureau of the Bank of Japan. As a 
result of this new development, this association became a general 
liasion machinery for the various financial institutions. 

4. Designation system of financing war industries 

Since the organization of the National Financial Control Asso¬ 
ciation, special banks and big ordinary banks have been designated 
to finance certain armament factories which had been awarded 
contracts from the military authorities. These factories were 
authorized to draw bills, known as munitions bills, on the Indus¬ 
trial Bank of Japan. These bills were discounted by the ordinary 
banks and the rediscount on these bills was granted by the Bank 
of Japan. The factories that could draw the munitions bills were 
also designated by the Ministry of Munitions. They numbered one 
hundred and fifty companies in the beginning. On 25 April 1944, 
however, an additional 450 concerns were designated and on 29 
April banks were designated to finance each of the armament com¬ 
panies. The rules governing this designation system are summar¬ 
ized as follows: 

1. One or two banks, either Special or Ordinary, is or are 
designated to each armament concern, monopolizing the 
financing of that particular concern. 

2. Behind each designated bank, a cooperative group 
(KYORYOKU DAN) composed of local banks, trust 
companies, etc., is organized to aid the designated bank 
in the financing of the armament concern. 

3. The relationship between the designated bank and the 
cooperative group remains anonymous. Both the des- 


112 


ignated bank and the cooperative group have a joint 
responsibility for the financing. 

4. The financial transactions between the designated bank 
and the cooperative group are based on Loans on Deeds 
(SHOSHO KASHITSUKE). 

5. The designated armament concern keeps its deposits in 
the bank where they had been kept previously, and is not 
forced to deposit its funds with the designated financing 
bank. 

6. When a special bank and a big ordinary bank are to co¬ 
operate in financing an armament concern, the special 
bank finances the fixed capital and the equipment, etc., 
necessary for the expansion of the project, and the big 
city bank finances the working capital. 

7. The Bank of Japan guides the entire program of arma¬ 
ment financing and the necessary funds are supplied 
without being limited to the amount of currency issues 1 . 

On 8 January 1945 a slight modification of the above rules took 
place. Although the exact text of the modification is not available, 
it is believed that (5) above has been revised to the effect that banks 
other than those that are government designated will be prohibited 
from handling the deposits of armament concerns, with certain 
exceptions. Also, only armament concerns are eligible to borrow 
funds from the specially designated banks and other authorized 
financial institutions; non-strategic investments of the designated 
banks are prohibited; the employees of the Bank of Japan, of the 
designated banks and of the National Financial Control Association 
are designated as government officials in the handling of business 
under the Funds Regulations and the Munitions Company law. 
Furthermore, whenever the government deems it necessary, it may 
order the designated banks to furnish the government with the 
necessary amount of bond and the interest rates and other stipula¬ 
tions on loans will be fixed by the government. 

Under the rules of the designation system, the burden of financ¬ 
ing the armament industries rests upon the Bank of Japan, the 
special banks and the big banks. In other words, it may be said 
that the whole Japanese banking structure can be classified in two 
categories; one of banks for industrial financing, and the other of 
banks for the absorption of savings. The function of industrial 
financing is delegated to the five big banks: namely, the Teikoku 
Bank (Imperial Bank), Yasuda Bank, Mitsubishi Bank, Sanwa 

1 At this point it may he interesting to note that a new Law of the Bank of Japan, relating to 
the Extraordinary Exceptions from Application of the Convertible Bank Note Law, empowered 
the Bank of Japan to issue bank notes which are not convertible into gold. Thus the bank issued 
nonconvertible notes of 1, 5, and 10 yen denominations, beginning 14 December 1943, and of 100 
yen beginning 20 March 1944. 


113 



Bank and the Sumitomo Bank; while the local banks and the other 
financial organizations devote themselves to the function of absorb¬ 
ing savings, either to support the designated banks in their financ¬ 
ing of the armament industries, or to purchase government bonds 
and other corporate bonds necessary for the financing of the war. 

Since the introduction of the Munitions Bills discounting system, 
the cooperative financing of armament industries, and the desig¬ 
nation system, the tendency to over-emphasize the importance of 
armament industries was parallel by inefficient utilization of funds 
on the part of the industries. The financial institutions were com¬ 
pletely subservient to the armament industries and lacked the 
authority and the mechanisms for the financial supervision of the 
♦ industries. This situation was indicated by the pronouncement 

that the designated banks were to supervise the armament concerns 
which they finance for the proper and efficient utilization of the 
funds they borrow. 

The effect of the designation system on the Japanese banking 
structure was that the Bank of Japan, in name and in fact became 
a government organ, designed to carry out government policy. 
Furthermore, its leadership among the banks has been strength¬ 
ened tremendously. This is demonstrated by the fact that its loans 
to the large city banks have increased enormously in recent years, 
amounting to over four billion yen in the early part of 1944. 

The position and the prestige of the so-called big five banks have 
also been vastly strengthened. These banks can no longer be re¬ 
garded as private banks and from the standpoint of financing the 
armament concerns, they play a far more important role than do 
many of the so-called special banks. In the May 1944 issue of the 
Nihon Hyoron it is shown that the big five banks held approximately 
45 percent of the total deposits, 47 percent of the total loans, and 
31 percent of the securities holdings of all banks, except the Bank 
of Japan. 1 

Among the Special Banks and institutions which are concerned 
primarily with the financing of the armament industries are the 
Industrial Bank of Japan and the Wartime Finance Bank (SENJI 
KINYU KINKO). After the five big banks began to take an active 
part in the financing of the armament industries, the Industrial 
Bank became less important in that field and it no longer has greater 
prestige than the five big banks. The Wartime Finance Bank, 
however, plays an important role in financing the armament indus¬ 
tries. By the end of November 1943 its total loans had reached 
800 million yen. 

The Local Banks (or provincial banks), on the other hand, are 

1 See table on p. 104. 

114 


r 



chiefly devoted to the absorption of savings to be used for the pur¬ 
chase of debentures and to making loans to the designated banks. 
This is clearly borne out by the fact that deposits with the local 
banks have been increasing steadily since 1943, while the increase 
of deposits with the big five banks has lagged considerably. The 
comparative figures of total deposits for 80 Local Banks in 1944 
with the 84 Local Banks in 1943 are as follows: 


Deposits in Million Yen 


April 

May 

June 

July 


19 U 
.529. 
.900. 
.779. 
-790. 


19 US 

218. 

437. 

447. 

*0 


The increase in deposits with the local banks is said to be due to: 

1. The increase in the production of food and the corre¬ 
sponding increase in the farmers’ incomes. 

2. Increase of industrial activities in provincial towns and 
in rural areas. 

3. Transfer of deposits from city to provincial banks owing 
to evacuations. 

4. Changes in the banking laws of August 1943, permitting 
the local banks to accept savings deposits and the amal¬ 
gamation of the savings banks with the ordinary banks. 
The number of branches of local banks has considerably 
increased. 


5. Establishment of new banks 

The introduction of financial supervision of the armament con¬ 
cerns by the designated banks which has been mentioned in the 
discussion on the Designation System of Financing War Industries, 
did not bring about satisfactory results. This was revealed in a 
recent radio broadcast to the effect that the Japanese financial 
critics are of the opinion that the current inflationary trend is 
largely due to the inefficient management of munitions funds and 
the reckless expenditures of some companies. According to the 
information received in the early part of May 1945, the former 
Vice Minister of Finance Hideo Matsukuma stated in an article 
entitled “What We Desire of the New Finance Minister,” that effi¬ 
cient management of idle funds and its absorption are the two 
most important tasks of the Finance Minister. 

The steady increase of deposits among the local banks seemed 
to have created a demand for a better and more effective method of 
absorbing the idle funds. In the early part of March 1945, it is 

1 Not available. 


115 







revealed that the Minister of Finance made a statement to the effect 
that “In line with the demand of the business world, the Finance 
Ministry has had under consideration the establishment of a Co¬ 
operative Finance Bank, composed of member banks of the Local 
Banks Control Association. ,, 

a . The Cooperative Finance Bank (KYODO YUSHI GINKO). 
The purpose of organizing this bank is to centralize the use of 
local banks’ excess funds under the supervision of one organ. The 
excess funds of the local banks are said to be increasing steadily 
as a result of prosperity in the farm areas 1 and the bank is to use 
the funds for the purchase of bonds of the Industrial Bank of Japan 
and other debentures and to make loans to armament industries in 
cooperation with the designated banks. Although no detailed in¬ 
formation regarding the structure of this bank is available, the 
prevailing information discloses that this batik is organized accord¬ 
ing to the provisions of the Bank Law and the authorized capital 
is expected to be 10 million yen. The seventy-seven member banks 
of the Local Bank Control Association subscribed the capital and 
Masahiko Wada, president of the Local Bank Control Association, 
heads the bank. This bank is supposed to have opened for business 
on the 1st of April, 1945. 

b. The United Funds Bank (SHIKIN TOGO GINKO). On 7 
April 1945, it is revealed that the organization of another bank 
called the United Funds Bank has been proposed by the Minister 
of Finance and the Bank of Japan. The purpose of organizing this 
new bank is said to be “to effect the unification of all financial 
organs.” The capital of this new bank is 50 million yen, one half of 
which is paid up. The shares of this bank are to be subscribed by 
the Bank of Japan, Yokohama Specie Bank, Industrial Bank of 
Japan, Hypothec Bank of Japan, Bank of Chosen, Bank of Taiwan, 
Hokkaido Colonial Bank, Cooperative Finance Bank (KYODO 
YUSHI GINKO), Japan Savings Bank (NIPPON CHOCHIKU 
GINKO), Teikoku Bank, Central Bank (KINKO) for Agriculture 
and Forestry, Peoples Bank (KINKO), four big trust companies 2 
and seven other metropolitan banks. 3 It is further revealed that 
this bank, when established, will handle the following business in 
close cooperation with the Bank of Japan and the government. 

(1) It will accept deposits as well as borrow funds from the 
member banks 4 


1 See table on p. 115. 

2 and 3 The exact names of the four big trust companies and the seven other metropolitan banks 

are not available. However, among the Japanese trust companies, the Mitsui, Sumitomo, Mitsu¬ 
bishi, Sanwa, and the Yasuda trust companies are the leading ones. The seven other metropolitan 
banks may mean the Yasuda, Mitsubishi, Sanwa, Sumitomo, Nomura, Kobe, and Nagoya banks. 

4 “Member banks” may refer to those banks which subscribe the shares of the United Funds 
Bank. 


116 



(2) It will make loans to munitions financing institutions and 
other organs 

(3) It will advance funds to special juridical corporations and 
organizations which undertake work for national benefit 

(4) It will borrow funds from the Deposit Bureau of the Bank 
of Japan 

(5) It will subscribe as well as handle bonds and securities other 
than national bonds 

c. Daiichi Bank (DAIICHI KINKO). On 12 February 1945 
the formation of another bank or chest (KINKO) known as the 
First Bank was revealed. According to the information available, 
it was organized under the First Bank Law (DAIICHI KINKO 
HO) which was passed by the 86th Diet and began its operation on 
12 February 1945. The purpose of organizing this bank is not 
known, however, the principal of this bank is said to have estab¬ 
lished within the Finance Ministry and the Vice Minister of 
Finance Matsukuma became the chief director. 

B. CHANGES IN BANKING OPERATION 

Despite the changes which have taken place in the Japanese bank¬ 
ing structure, the basic methods of banking operation and the 
accounting system which have been explained in detail in this 
guide, have remained the same. There have been, however, a con¬ 
siderable number of minor modifications of the regulations and 
practices which were more or less brought about by wartime 
circumstances. 

1. Emergency measures 

On 8 December 1941, as an emergency measure, the Minister 
of Finance made an announcement that no bank moratorium was 
proposed. In case of need, the Bank of Japan, the Bank of Chosen 
and the Bank of Taiwan were to supply funds to needy banks to be 
used for payments to the depositors. These three banks were to 
guarantee the debts of the banks as an assurance to their depositors. 
They are to aid those whose businesses were damaged in war 
(bombings, etc.) by granting rediscount on their papers to the 
banks who hold such commercial instruments. The Industrial 
Bank of Japan, the Hypothec Bank of Japan and the Wartime 
Finance Bank would go to the aid of the armament concerns when 
they found themselves in financial distress caused by bombings or 
by their banks' refusal to furnish funds necessary for the produc¬ 
tion of armament. 

The emergency measures also provided that the Minister of 
Finance would direct the local banks to undertake the payment 


117 


of deposits to war refugees who had deposits in banks of other 
cities. This type of withdrawal was limited to 100. yen per day 
and 300. yen per month. This was increased later to 200. yen per 
day, and 500. yen per month. These advance payments on behalf 
of other banks were at first limited to Special Current Deposits 
with the Ordinary Banks and Local Banks, Ordinary Deposits with 
the Savings Banks, and the Special Current Trust (TOKUBETSU 
TOZA KITAKU KIN) with the Pension Bank (SHOMIN KINKO). 
Later these were extended to include other kinds, such as Fixed 
Deposits with the Ordinary or Local Banks and Deferred Deposits 
with the Savings Banks. Furthermore, the emergency measures 
also allowed cash payments to depositors who had made the de¬ 
posits for the purpose of buying government bonds. 

A significant change took place in September 1943, when the 
government instructed all financial institutions to adopt the gov¬ 
ernment fiscal year — 1 April to 31 March. Thus, the first fiscal 
half-year would end on 30 September and the second half on 31 
March. It is believed, however, that the banks are continuing 
to distribute dividends and bonuses at the end of June and Decem¬ 
ber, as was done previously. In March 1944, the Minister of 
Finance ordered banks, trust companies, insurance companies, 
clearing houses, postal savings offices, credit associations, etc. to 
extend their working hours and to remain open on Sundays, closing 
only on major national holidays. 

As an emergency measure, the Minister of Communications an¬ 
nounced in September 1943 that working hours of the post office 
were to be extended beyond 5:00 P.M.; depositors who lost their 
pass books would be allowed to withdraw their deposits up to 50. 
yen, upon furnishing a guarantor; depositors would be allowed to 
withdraw deposits up to 500. yen on pass books issued by other 
post offices; those who lost Postal Money Orders would be allowed 
to receive money from the post office upon presentation of a guar¬ 
antor, and when the identifying seal was lost, depositors would 
be allowed to use the thumb-print identification. 

2. Deposit division 

In December 1944, the Japanese Financial Control Association 
and the Industrial Control Association reached an agreement 
whereby the industries would transfer dividends to the deposits 
accounts of their shareholders rather than pay in cash. This step 
was evidently based upon the practical desirability of simplifying 
the payment of dividends, increasing bank deposits and reducing 
the currency circulation. 

In the 21 March 1944 issue of the newspaper Yomiuri Hochi, it 
was stated that the Minister of Finance was considering the appli- 


118 


cation of a policy which would simplify regulations regarding 
changing ownership of deposits. In the past, such a change was a 
time-consuming process, even when the request was made to the 
bank where the money was kept. The new policy would make it 
possible to change the ownership of deposit even when the money 
is kept in a bank other than that where the application for change 
was made. 

a. Fixed deposits. Although it had been ruled that fixed deposits 
were not to be withdrawn before their maturity date, this was 
revised to enable the depositors to withdraw before maturity. The 
Deferred Deposits which were handled by the savings banks were 
also allowed to be withdrawn before maturity. The depositors, in 
this case, would receive the same interest rate as had been* con¬ 
tracted for. 

Due to the amendment in the tax law passed by the 84th Diet, 
the National Financial Control Association decided on 5 April 1944 
to lower the interest rate on fixed deposits held by all local banks. 
This amendment levies a 5 percent tax on all interest on bank 
deposits. The rate on fixed deposits held by all local banks is fixed 
at 3.3 percent. 

In an effort to encourage the people to save, the banks introduced 
a new type of fixed deposit in June 1944, known as the Bonus Fixed 
Deposit (WARIMASHI KIN TSUKI TEIKI YOKIN). Under this 
innovation, depositors are required to keep their money in the bank 
for two years at an interest rate of 3 percent per annum. Besides 
the payment of interest on the deposit, the bank offers a lottery 
ticket to each depositor for a deposit of every 100. yen. Prizes of 
10,000. yen for every 100,000 tickets and other minor prizes rang¬ 
ing from 10. yen to 1,000. yen are drawn for every year in August. 

b. Special current deposits. As a wartime measure, ordered by 
the Minister of Finance, all owners of this type of deposit who have 
lost their pass books are allowed to withdraw up to 50. yen of their 
deposits upon furnishing a co-signature. This rule applies regard¬ 
less of whether the drawer has an account with the paying bank 
or whether he has an account with another bank that had issued 
the pass book. 

c. Current deposits. On 1 April 1944 the National Financial 
Control Association instructed all the banks in the 6 large cities— 
Tokyo, Osaka, Kobe, Nagoya, Kyoto, and Yokohama—not to pay 
interest on their current accounts. The Ordinary Banks and the 
Local Banks in other areas were to raise the minimum balance on 
which the interest was to be calculated. This step was taken in 
order to simplify banking operations in view of the shortage of 
skilled bank employees. 


119 


3. Loan division 

Aside from making advance payments on deposits to war refu¬ 
gees, the Japanese government also made provision for loans to 
those who suffered directly or indirectly from the war. These 
loans are said to be handled by the People’s Bank (SHOMIN 
KINKO). Although precise information is not available, it is 
probable that the ordinary, local and savings banks are also han¬ 
dling these loans either as agents of the People’s Bank or inde¬ 
pendently under their own rules with government guarantee. 
These loans are of two types. One is the SOKAI HI which is 
translated as “expenses necessary for the evacuation of civilians” 
and the other is the SENSAI TOKUBETSU KASHITSUKE or 
“special loans for war sufferers.” 

It is generally believed that the Japanese Government is appro¬ 
priating some funds for the evacuation of civilians as well as in¬ 
dustries, but exact information on this subject is not available. 
The SOKAI HI loan mentioned above is limited to 3,000. yen except 
in special cases where it then can be increased to 5,000. yen. The 
borrower need not prove his identity, but he must furnish a guar¬ 
antor who is a local resident. The interest rate on this loan is fixed 
at 7.5 percent and is to be repaid in three years on a monthly 
installment basis. 

The Special Loan for War Sufferers is handled by the People’s 
Bank. This loan is made to persons who incurred losses or suf¬ 
fered injuries directly or indirectly from bombings. It is to be 
applied for within six months from the time the loss or injury 
occurred and is to be used for living expenses, hospitalization and 
the rehabilitation of business. The amount is limited to 2,000. yen 
per family. In special cases, the loan may be increased to 3,000. 
yen. The interest rate is fixed at 6 percent per annum, and one 
co-signer is required, except where the loan is recommended by 
the police. The period of the loan is from three to five years and 
is to be repaid in monthly installments. 

a. Loans on bills. Exact data explaining the types of loans in 
which Munitions Bills are handled are as yet unobtainable, but 
judging from the information at hand, it is reasonable to assume 
that the Munitions Bills are handled by the ordinary and local banks 
as Loans on Bills (TEGATA GASHI) and they are re-discounted 
by the Bank of Japan. This assumption is based upon the fact 
that loans made on bills by Ordinary Banks amounting to 12.3 bil¬ 
lion yen 1 on 30 June 1941, increased to 17.6 billion yen on 30 April 
1943. On the other hand, loans on deeds decreased slightly during 


1 Civil Affairs Handbook, M354-5, Section 5, Money and Banking, p. 122. 

120 



the period of 31 December 1941 to 30 April 1943. Bills discounted 
show a nearly 300 million yen decrease between 30 June 1941 and 
30 April 1943. These developments indicate that the Munitions 
Bills are regarded by Ordinary Banks as Finance Bills rather than 
as Commercial Bills. 

The Industrial Bank of Japan, on the other hand, finances the 
armament industries through use of Bills Discounted. Loans on 
this account have increased from 1,450 million yen on 30 June 1941 
to 2,201 million yen on 30 June 1942. 1 The Bank of Japan handles 
this type of loan in the form of Bills Discounted; that is, granting 
rediscount on Munitions Bills to Ordinary Banks. On 30 June 1941, 
the amount of Bills Discounted by the Bank of Japan was 275 
million yen. It increased to 3,769 million yen on 30 March 1944. 2 

Munitions bills . On 26 August 1941, the Minister of Finance 
issued an order setting up a Munitions Bills Acceptance System. 
This was a device to facilitate and regulate the financing of loans 
needed by those engaged in the production of arms, aircraft, war¬ 
ships and other materials necessary for war. Under this system, 
the munitions companies were authorized to draw bills on the 
Industrial Bank of Japan for an amount not exceeding the value 
of orders involved. These bills are certified and stamped by the 
Army or Navy and are accepted by the Industrial Bank of Japan. 
The Ordinary Banks granted loans on these bills, and they, in 
turn, obtained rediscount from the Bank of Japan. After the or¬ 
ganization of the National Financial Control Association in May 
1942, the administration of the Munitions Bills Acceptance System 
became one of the major functions of this association. 

Available information does not clarify whether the discounts 
on Munitions Bills are for the supply of working capital or for the 
fixed investments of the armament concerns. The rules governing 
the Designation System state that in case a Special Bank and 
Ordinary Bank cooperate in financing the armament concerns, the 
Ordinary Bank is to finance the working capital while the Special 
Bank is to finance the fixed capital or equipment. It can be reason¬ 
ably assumed, therefore, that loans on Munitions Bills made by the 
Ordinary Banks to armament concerns are for the working capital 
of the same. 

The Berliner Borsen Zeitung of 13 November 1943 discloses the 
amount of rediscounts by four of the Big Five Banks with the Bank 
of Japan as of 5 November 1943, as follows: 


1 See Money and Banking, M354-5, p. 127. 

2 See Money and Banking, M354-5, p. 117 



(In Million Yen) 


v Teikoku Bank_ _ 455. 

Yasuda Bank___ _ _ _ - - 102. 

Sumitomo Bank_ __210. 

Sanwa Bank ____ 80. 


847. 

b. Loans on deeds. The rules governing the Designation System 
of financing the armament industries state that financial transac¬ 
tions between the designated bank and the cooperative group are 
to be carried out on the basis of Loans on Deeds. This means that 
the financial organizations which are within the cooperating group 
will loan money to the designated bank in the form of Loans on 
Deeds. No statistics are available to show the extent of increase 
in this type of loan. 

c. Overdrafts. In the past, the interest on overdrafts had been 
calculated four times a year, or twice within a fiscal half-year. This 
was reduced to twice a year by the National Financial Control Asso¬ 
ciation, by a new rule which became effective in April 1944. Simi¬ 
lar in purpose to many other measures taken by the association, it 
is meant to simplify banking operations in view of the shortage of 
skilled bank personnel. 


☆ u.s. GOVERNMENT PRINTING OFFICE: 1945- 649316 


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